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Brussels Weekly News Prepared for SwissBanking

19 – 23 November 2018

SWISS-EU RELATIONS

Commission representatives are of the view that the negotiations on the Institutional Framework Agreement

have reached a stage where political decisions are necessary. The Commission waits to see the outcome of

this weekend’s vote on the Self-Determination Initiative and will then expect to hear soon a statement from

the Federal Council on the Institutional Framework Agreement.

BREXIT

Negotiations on the draft Political Declaration setting out the framework for the future relationship between

the EU and the UK have continued, prior to this weekend’s Brexit Summit. For financial services, the

Declaration envisages reciprocal market access based on equivalence decisions. Assessment of

equivalence should commence as soon as possible after the UK’s withdrawal from the EU and be concluded

before the end of June 2020. The cooperation should ensure “transparency and appropriate consultation in

the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and

consultation on regulatory initiatives and other issues of mutual interest”.

FINANCIAL SERVICES

Representatives of the European Parliament (EP), the Council and the Commission held trilogue meetings

on the banking package, during which they reached a provisional deal on amendments to the Bank

Recovery and Resolution Directive and almost reached a full agreement on new rules to the Capital

Requirements Directive.

The Austrian Presidency of the Council reached a provisional agreement with the EP on an EU framework

for screening foreign direct investments (FDIs). The framework will enable the Commission to issue advisory

opinions to Member States where it considers that an investment could affect security or public order in one

or more Member States. The proposal will be submitted to EU ambassadors for endorsement.

The Eurogroup discussed several issues ahead of the EU Summit in December. With regard to the Banking

Union, the ministers looked into the possibility of introducing the common backstop to the Single Resolution

Fund before the end of the transition period (i.e. before 2024) if sufficient risk reduction is achieved. They

further discussed the reform of the European Stability Mechanism (ESM), in particular debt sustainability

issues, including the possible introduction of single limb collective action clauses. Lastly, they discussed

proposals on the introduction of instruments for stabilisation and convergence.

ANTI-MONEY LAUNDERING

EU ambassadors agreed the Council’s negotiating position on a directive providing for rules that aim to

facilitate the use of financial and other information for the prevention, detection, investigation or prosecution

of certain criminal offences. In particular, the agreed negotiating position requires that law enforcement

authorities have the power to access and search directly and immediately bank account information.

Requests for financial as well as law enforcement information must be treated in a timely manner. The

Council Presidency will start negotiations with the EP once the latter has adopted its position.

WHISTLE-BLOWERS PROTECTION

The Legal Affairs Committee of the EP approved a proposal for a draft directive that requires Member States

to establish safe reporting mechanisms and support in order to guarantee that whistle-blowers in the EU can

report breaches of EU law in the areas of tax evasion, corruption, environmental protection and public health

and safety without fear of retaliation or intimidation. Once the draft directive is endorsed by the EP’s plenary,

negotiations between the Council and the EP will commence.

HORIZON EUROPE

The Industry, Research and Energy Committee of the EP adopted its position on both parts of the Horizon

Europe legislation — the rules for participation and the specific programme implementing Horizon Europe

which lays out the details of research spending. In particular, the Committee MEPs voted to increase the

Horizon Europe budget to €120 billion.

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Brussels Weekly News Prepared for SwissBanking

12 – 16 November 2018

SWISS-EU RELATIONS

On 14 and 15 November, the Code of Conduct Group on Business Taxation held two meetings where they

discussed the situation with regard to the progress and timeline of the Swiss corporate tax reform. In order to

defuse the situation, the Swiss Federal Department of Finance had announced that it will no longer apply the

federal practices concerning principal companies and Swiss finance branches to new companies from 2019.

This was well received by the Code of Conduct Group.

BREXIT

The Cabinet of the UK approved the draft Brexit agreement and the outline of the Political Declaration setting

out the framework for the future EU-UK relationship, thus triggering a political crisis in the UK.

The President of the European Council Donald Tusk announced that the European Council will hold a

meeting on 25 November to finalize and formalize the Brexit agreement.

ELECTIONS/APPOINTMENTS

The European Conservatives and Reformists Group (ECR) nominated the Czech Member of the European

Parliament Jan Zahradil as their “Spitzenkandidat” to become the successor of Jean-Claude Juncker as

Commission President.

FINANCIAL SERVICES REGULATION

The Parliament’s ECON Committee published its report on proposed changes of MiFID II with regard to

crowdfunding and virtual currencies.

The Vice-President of the Commission Valdis Dombrovskis stated that the “legal twilight zone” of crypto-

assets and ICOs is not good for the Single Market and that the Commission, together with the European

Supervisory Authorities, will assess the possible way forward.

ESMA updated its Q&As regarding the implementation of the Market Abuse Regulation, which deals with

topics such as insider dealing, unlawful disclosure of inside information and market manipulation.

ESMA updated its Q&As concerning the implementation of the Central Securities Depository Regulation,

covering topics such as the provision of services in another Member State and settlement discipline.

ESMA updated its Q&As on market structures and its Q&As on transparency issues under MiFID II and

MiFIR, providing clarification on the obligation to make data available free of charge 15 minutes after

publication, obligations applicable to systematic internalisers in non-TOTV instruments, the definition of RFQ

systems, pre-trade transparency in RFQ systems as well as the concept of comparable size in market

making agreements and voluntary provision of liquidity.

The ECB published its guides for banks on their capital and liquidity assessment process. The new

guidelines become applicable on 1 January 2019.

ESMA published an updated new version of its supervisory briefing on MiFID II suitability requirements.

ANTI-MONEY LAUNDERING

In an in-depth analysis requested by the Parliament’s ECON committee, the external author Prof Harry

Huizinga concludes that while more adequate cooperation and information sharing among national AML/CFT

authorities as well as increased powers for the EBA on AML/CFT could have a positive effect, the best

approach would be the establishment of a new EU body charged with AML/CFT supervision. Moreover, he

suggests to turn the 5th AML Directive into a Regulation.

DATA PROTECTION

In an answer to a parliamentary question, Commissioner Věra Jourovà wrote that the Commission noted that

several national data protection authorities have reported an increase in the number of complaints received

after the entry into force of the GDPR but that it is still too early to have a preliminary assessment of the

GDPR application at European level. The Commission will report on the application of the GDPR in 2020.

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Brussels Weekly News Prepared for SwissBanking

5 – 9 November 2018

BREXIT

Next week, Brexit chief negotiator Michel Barnier will update the EU General Affairs Council on the ongoing

Brexit talks. All withdrawal issues, including that of avoiding a hard border between Ireland and Northern

Ireland, must be agreed in good time for the deal to be ratified before the withdrawal date of 29 March 2019.

ELECTIONS/APPOINTMENTS

The Congress of the European People’s Party (EPP) nominated Manfred Weber as its candidate for

President of the European Commission. He is now the person most likely to succeed Jean-Claude Juncker.

The ECB nominated the EBA’s chair Mr Andrea Enria as a new Chair of Supervisory Board. The final

approval has to be given by the Council after the Parliament’s vote.

Irish Member of the European Parliament and author of the own-initiative report on relationships between the

EU and third countries concerning financial services regulation Brian Hayes announced that he will leave

politics shortly and become CEO of the Banking and Payments Federation in Ireland.

FINANCIAL SERVICES

The Eurogroup continued its discussion on creating a common backstop to bank resolution. The Terms of

Reference establishing a common backstop will be delivered to the Euro Summit in December.

ESMA launched a call for evidence on periodic auctions for equity instruments. ESMA is concerned that

frequent batch auctions could be used to circumvent the double volume cap and other MiFID II pre-trade

transparency requirements.

The Court of Justice of the European Union ruled that the exclusive operation of a national mobile payment

system by an undertaking controlled by the Hungarian State is contrary to EU law.

Ten EU countries branding themselves as 'Hanseatic' states have presented a joint paper suggesting that

the European Stability Mechanism managing director should be tasked to verify the adequacy of the

borrower's repayment capacity before presenting the programme to the Board of Governors for approval.

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA) launched a

public consultation to amend the Implementing Regulations on the mapping of credit assessments of

External Credit Assessment Institutions. The consultation runs until 31 December 2018.

The EBA has published the results of the 2018 EU-wide stress test. It has also published its final guidelines

on management of non-performing and forborne exposures.

ESMA published a list of the signed Memoranda of Understanding by the EU authorities with non-EU

regulators around the globe regarding the Alternative Investment Fund Directive (AIFMD).

ESMA and the EBA published a Guidelines compliance table regarding the assessment of the suitability of

members of the management body and key function holders under CRD IV and MiFID II.

ESMA published new data for bonds subject to the pre- and post-trade requirements of MiFID II and MiFIR

as well as data for the systematic internaliser calculations for equity, equity-like instruments and bonds under

MiFID II and MiFIR. ESMA also issued a decision pursuant to Article 40 MiFIR to restrict the marketing,

distribution or sale of contracts for differences (CFDs) to retail clients.

ESMA published the responses received to its Consultations on Prospectus.

ANTI-MONEY LAUNDERING

The ECB’s Governing Council decided to withdraw the banking licence of Malta's Pilatus Bank accused of

money laundering.

TAX

The Council removed Namibia from the EU’s list of non-cooperative tax jurisdictions.

The EU finance and tax ministers held a policy debate on the proposal to establish a digital services tax but

further work at technical level is required to reach an agreement at the Council meeting on 4 December.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

22 – 26 October 2018

SWISS-EU RELATIONS

Swiss Ambassador to the EU Urs Bucher made a strong opening statement at a hearing of the Council’s

EFTA Group, which is preparing the Council’s forthcoming conclusions on Switzerland, due to be adopted by

the end of the year or early next year. Bucher said among other things that a swift, unlimited renewal of the

equivalence for the Swiss stock exchanges would benefit all stakeholders, whereas “weakening the Swiss

financial market would weaken the European financial market as a whole” and “competitors outside Europe

would benefit from it”.

BREXIT

Donald Tusk, President of the European Council, reported to the European Parliament on the results of the

EU Summit held last week in Brussels.

FINANCIAL SERVICES

The Parliament’s Think Tank published a briefing paper on the proposed changes to the rules governing

cross-border euro transfers and currency conversions.

The European Parliament’s ECON Committee published a draft report on the proposal for a Regulation

concerning sovereign bond-backed securities.

The EBA published its Work Programme for 2019. Next year, the Authority will focus on (a) leading the Basel

III implementation in the EU; (b) understanding risks and opportunities arising from financial innovation; (c)

collecting, disseminating and analysing banking data; (d) ensuring a smooth relocation of the Authority to

Paris; and (e) fostering the increase of the loss-absorbing capacity of the EU banking system.

The EBA announced that individual results for the banks participating in the 2018 EU-wide stress test will be

published on Friday 2 November 2018.

The Securities and Markets Stakeholder Group of ESMA published its own-initiative report on initial coin

offerings (ICO) and crypto-assets. With the report, the Group wanted to provide advice to ESMA on how to

contain the risks of ICO’s and crypto assets.

EUROPEAN COMMISSION WORK PROGRAMME FOR 2019

The European Commission published its Work Programme for 2019. Next year, the Commission is planning

to analyse reporting requirements to supervisory authorities stemming from the EU financial services

legislation, e.g. from CRR/CRDIV, MiFID/MiFIR, EMIR etc., and to evaluate corporate reporting requirements

according to the International Accounting Standards Regulation and the Accounting, Non-Financial Reporting

and Transparency Directives.

DATA PROTECTION

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality and Wilbur Ross, the US

Secretary of Commerce, published a joint statement on the Second Annual EU-US Privacy Shield Review.

The Commission will publish a report on the functioning of the Privacy Shield by the end of this year.

The 40th International Conference of Data Protection and Privacy Commissioners took place in Brussels.

Over 1000 delegates attended the event to debate digital ethics.

TAX

Members of the ECON and the TAX3 committees of the European Parliament had an exchange of views

with Bruno Le Maire, the French Minister for Economy and Finance on digital taxation (link to recording). The

overall conclusion was that current tax rules were not fit for the digital economy. The rules need to be modernised

to ensure that digital companies contribute a fair share of taxes.

Note: as we are in the process of finalizing the Quarterly Report, there will be no Weekly News next week.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

15 – 19 October 2018

SWISS-EU RELATIONS

Following a difficult negotiation round, EU negotiators are liaising with the cabinet of Commission President

Jean-Claude Juncker to assess the situation. The Commission is insistent that Switzerland must accept the

EU citizenship Directive. In turn, Switzerland is unable to compromise on the accompanying measures.

Meanwhile, the issue of state aid supervision in Switzerland is not entirely resolved.

The Council’s EFTA Working Group will conduct a hearing with the Head of the Swiss Mission to the EU

Ambassador Urs Bucher on Monday 22 October. The EFTA Group is preparing the Conclusions of the

Council on Switzerland, due to be adopted in December or January.

The Commission took a hard line against Switzerland in discussions with the Council’s Code of Conduct

Group on Business Taxation. The Commission criticized that Switzerland will not be able to confirm the

passing of the corporate tax reform by the end of this year. The Commission suggested that it should be

possible to put into effect certain parts of the reform already in 2019, notwithstanding a potential referendum.

BREXIT

The European Council did not address the issue of Brexit in its conclusions after the Summit of 17 and 18

October. Donald Tusk, President of the European Council, commented that the EU27 would be ready to

consider an extension of the Brexit transition period if this could facilitate a deal with the UK. He also said

that an agreement on the Banking Union and the European Stability Mechanism must be reached by

December.

FINANCIAL SERVICES REGULATION

The Austrian EU Presidency is sounding out Member States representatives to find a compromise on the

equivalence regime for non-EU investment firms, as part of the ongoing review of the prudential

requirements and supervision of investment firms (“investment firm review”).

The Council and the Parliament clashed on the issue of proportionality when discussing the review of

CRD V / CRR II in interinstitutional trilogue negotiations. The Austrian EU Presidency was reluctant to enter

into a debate on the simplification of the net stable funding ratio for lenders holding less than 5 billion €.

The Council endorsed a political agreement with Parliament on the relocation of the EBA to Paris and the

European Medicines Agency to Amsterdam.

ESMA published its first Annual Statistical Report on the EU derivatives markets.

ANTI-MONEY LAUNDERING

EBA Chairman Andrea Enria sent a letter to the Commission’s Directorate-General for Justice and

Consumer Affairs. In the letter, EBA raises the question whether the Maltese Anti-Money Laundering

Authority has followed earlier recommendations to comply with the 4th Anti-Money Laundering Directive. The

Commission must now decide whether to address a formal opinion to the Maltese Authority.

TAX

Next week, the Council’s High-Level Working Party on Taxation will discuss proposals for the Digital

Services Tax and Common Corporate Tax Base (CCCTB). The Commissioner for Economic and Financial

Affairs, Mr. Pierre Moscovici, who is French, continues to lobby for a political agreement on the Digital

Services Tax proposal by December this year.

Brussels Quarterly Report Prepared for SwissBanking

July - October 2018

Doc. # EMEA-3060649 v.4

Table of Contents

Swiss-EU Relations 2

Brexit 3

Investment Firm Review 4

Reverse Solicitation 4

Inspections 5

ESAs Review 6

Other EU Financial Services Regulatory Matters 7

1. European Crowdfunding Service Providers 7

2. Basel III 7

3. European deposit insurance scheme (EDIS) 8

4. Pan-European Personal Pension Products (PEPPs) 8

5. Proposal on sovereign bond-backed securities (SBBS) 8

6. Financing sustainable growth 9

Jurisdiction for Consumer Claims 9

Anti-Money Laundering 10

1. Directive on countering money laundering by criminal law 10

2. Recent EU AML cases 10

Taxation 11

1. Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) 11

2. Swiss corporate tax reform 12

3. Risk assessment 12

Data Protection 13

1. International developments involving Switzerland 13

2. Adequacy decisions for other jurisdictions 13

3. Other EU data protection developments 13

4. Swiss-US privacy shield 14

Cybersecurity 14

Elections / Appointments 15

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Swiss-EU Relations

At a rather difficult negotiation round on 15 October 2018, Swiss and EU negotiators clashed over the issues of the EU Citizenship Directive and the Swiss flanking measures. Thereafter, the EU negotiation team transferred the dossier to the cabinet of Commission President Jean-Claude Juncker for a political assessment. A discussion between Presidents Juncker and Berset did not take place, although President Berset was in Brussels to attend the Asia-Europe Meeting (ASEM) summit. Notwithstanding, contacts with Switzerland continue on a technical level. The issue of state aid control is not quite resolved; the parties still disagree over the framework conditions for a supervisory structure in Switzerland.

The highest echelons of the Commission now take the view that it is up to Switzerland to propose a solution. It remains to be seen whether the Commission will stay with this position and for how long. It cannot be ruled out that the Commission might propose another compromise, thereby forcing the Swiss government to reconsider its position. One could for example imagine a possible trade-off between the most sensitive parts of the EU Citizenship Directive and the Swiss flanking measures.

Meanwhile, the fate of EU equivalence for Swiss stock markets according to article 23 MiFIR is still open. Given that the Commission has linked the issue of article 23 MiFIR equivalence to the institutional negotiations and the progress in these negotiations has been modest, it is unrealistic to expect that the Commission will opt for an unlimited extension. A renewal for a short term, not exceeding 12 months, seems to be the most likely outcome.

On 22 October 2018, the Council’s EFTA Group conducted a hearing with Swiss Ambassador to the EU Urs Bucher, in preparation of the Council Conclusions on

Switzerland, to be adopted by the end of 2018 or early 2019. In a forceful opening statement, Ambassador Bucher argued that the EU had made “unpredictable linkages between unrelated files, jeopardising existing trade links”. He criticized the fact that the Commission had only granted a time-limited equivalence for the Swiss stock exchanges in 2017, which he described as discriminatory. He explained that a swift, unlimited renewal of the equivalence would benefit all stakeholders, whereas “weakening the Swiss financial market would weaken the European financial market as a whole” and “competitors outside Europe would benefit from it”. He also mentioned that tensions between Switzerland and the EU would only strengthen euroscepticism. According to Ambassador Bucher, the Swiss government would support an institutional agreement provided the specific Swiss interests were duly taken into account. A balance of interests had to be found. Tilting artificially the balance of interests would “neither help finding a solution fit for long run, nor the ratification process”.

On 31 October 2018, the EU Member States diplomatic representatives met in the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (COREPER) for a one hour discussion concerning the relations between Switzerland and the EU. Half of the Member States made statements and offered their support for the approach taken by the EU’s European External Action Service (EEAS), which represents the EU in the institutional negotiations. Several Eastern European countries stressed that the Swiss contribution to the cohesion fund was essential for them and criticized the complex Swiss administrative procedures in that regard. They also criticized that Switzerland was allowed to make contribution over a period of five rather than ten years. The Commission stated that there is going to be a joint declaration aiming to ensure the continuity of the

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payments for the cohesion fund. The EU negotiator mentioned that the negotiation was practically finished for the majority of the technical aspects while the open points mainly concern the accompanying measures. He explained that Switzerland must now take a political decision, which is, however, not going to happen before 25 November 2018 (date of the vote on the Popular Initiative “Swiss law, not foreign judges”).

On the same day, Presidents Juncker and Berset had a telephone conversation. Shortly after, a Commission spokeswoman commented that the exchange had been friendly, both Presidents had shown understanding for each other’s positions and both had confirmed their willingness to conclude an agreement, provided the outstanding issues could be resolved.

There are indications that Federal Councilor Cassis will meet European Commissioner for European Neighborhood Policy & Enlargement Negotiations Johannes Hahn in the forthcoming future to discuss the issue of the Institutional Framework Agreement.

A swift conclusion of the institutional negotiations, be it through a formal agreement or a political “declaration of intent”, could arguably be in the interest of the Swiss banking sector because this might prepare the ground for exploring solutions for improved EU market access. At this time, this seems to be a reasonable assumption. However, it is unclear by when the beneficial effects of the conclusion of an institutional framework agreement could be translated into concrete opportunities for an enhanced EU market access for Swiss banks. The European Commission services still favour EU market access through equivalence. Even though there is a general expectation that a solution with the UK on financial services might create opportunities for other candidate countries interested in equivalence, this is not a forgone conclusion. There are no indications that the

Commission services have any concrete plans in that regard.

One issue that could set Switzerland apart in comparison to other interested non-EU countries is the existence of the 1972 Swiss-EU Free Trade Agreement. There are indications that the EU would be generally interested in an update of this agreement, once the institutional issues are resolved. Such update might involve an extension of the Free Trade Agreement to the services sector, possibly including the financial services industry. There are examples of recent free trade agreements negotiated by the EU with other non-EU countries that include chapters on financial services, although the coverage of these chapters usually is modest.

Brexit

As expected, the EU Summit of 17 and 18 October 2018 in Brussels did not result in a breakthrough in the Brexit negotiations. The European Heads of State and Government did not address the Brexit issue in their conclusions. It was left to the President of the European Council Donald Tusk to comment on the negotiations. He confirmed that the EU 27 wished “to continue the talks in a positive spirit” and he added “I stand ready to convene a European Council on Brexit, if and when the EU negotiator reports that decisive progress has been made. And we should be clear that, as for now, not enough progress has been made”. He furthermore hinted that the EU27 would be prepared to consider an extension of the transition period if necessary.

It is currently anticipated that a Brexit deal should be agreed either in November or December this year. However, even if a political agreement were to be reached, this will not completely remove all uncertainties. In particular, an agreement would still have to be ratified by the UK House of Commons and the European Parliament.

Around the end of October it was reported that the EU and the UK had supposedly

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struck a tentative deal that would give the UK’s financial services companies continued access to European markets after Brexit, provided that British financial regulation remained broadly aligned with that of the EU. This has proven to be inaccurate. However, Commission services acknowledge that there are good reasons on a technical level to reach an arrangement on financial services. In particular, the Commission is highly interested in reaching an agreement on supervisory cooperation.

The main questions blocking a Brexit deal are the Irish border issue, and whether the parties must set up a customs union or whether a free trade area might be sufficient.

Investment Firm Review

The Parliament’s Committee on Economic and Monetary Affairs (ECON Committee) adopted its reports on the proposed reform of the prudential requirements and prudential supervision of investment firms (investment firm review). In particular, the ECON Committee proposes to exclude underwriting and on own account dealing from the scope of eventual, future equivalence decisions according to articles 46/47 MiFIR. This would mean that companies from non-EU countries wishing to provide these services to EU clients would have to establish a legal entity or branch in the Union.

The Committee is now waiting for the Council to define its position on the file. Work in the Council’s Financial Services Working Party and the Financial Services Attaches meetings is progressing steadily. The Austrian EU Presidency, which is chairing the meetings, presented two first compromise proposals (on prudential requirements and prudential supervision), which did not yet address the issue of equivalence. A second compromise proposal, which will also cover equivalence, is in preparation. The French delegation

favors a restrictive approach, with a range of options ranging from the introduction of more granular criteria for verifying the equivalence of a non-EU jurisdiction to an obligation on non-EU investment firms to operate through branches in the EU.

The Council’s Working Group on Financial Services will discuss the Investment Firm Review again during its meeting on 16 November 2018.

Reverse Solicitation

Article 42 MiFID II provides that a non-EU investment firm may in principle provide services to a retail or professional client without an authorization within the meaning of article 39 MiFID II, provided the client initiates at its own exclusive initiative the provision of the investment service or activity in question.

ESMA elaborated on its understanding of the reverse solicitation term in the Q&A on investor protection on 25 May 2018, and the authority subsequently supplemented its explanations with practical examples on 12 July 2018. ESMA argued in particular that the client’s own exclusive initiative should be assessed “in concreto on a case by case basis for each investment service or activity provided, regardless of any contractual clause or disclaimer purporting to state, for example, that the third country firm will be deemed to respond to the exclusive initiative of the client.”

ESMA reaffirmed the principle that a non-EU firm may not market new categories of investment products under the reverse solicitation regime and it added “whether a third-country firm markets a new category of an investment product needs to be assessed on a case-by-case basis, taking into account elements such as (i) the type of the financial instrument which is offered; (ii) the distinction between complex and non-complex products as referred to in article 25(4) of MIFID II; (ii) the riskiness of the product”.

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On 9 October 2018, France presented a non-paper on the investment firm review that basically recommended incorporating the substance of ESMA’s opinion in article 42 MiFID II (level one). In particular, France proposed to include the following additional wording:

“Where a third-country firm, including through an entity acting on its behalf or having close links with such third-country firm or any other person acting on behalf of such entity, solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, regardless of the means of communication used, it shall not be deemed as a service provided at the own exclusive initiative of the client.

Any contractual clause or disclaimer purporting to state that a third country firm shall be deemed to respond to the exclusive initiative of the client shall be null and void.”

Whether or not the other national delegations in the Council will follow the French recommendations is currently subject to debate within the Council.

When reviewing ESMA’s Q&A and the French Non-Paper, it is important to bear in mind that these documents are positioned by their authors as having the purpose of a clarification. Neither ESMA nor the French delegation would like their proposals to be understood as an extension of the “reverse solicitation” regime. Rather, they argue that the proposed restrictions are already implicitly included in the current wording of article 42 MiFID II.

When ESMA chairman Steven Maijoor addressed the issue in a letter of 1 October 2018 to Commission Vice-President Valdis Dombrovskis the nature of the debate slightly changed. The letter concerned “MiFID II/MiFIR third country regimes, provision of investment services and activities at the exclusive initiative of the client and outsourcing of functions to third country entities”. Maijoor did not only raise

the question whether the wording of article 42 needed to be clarified. He also signaled to the Commission that ESMA would be available to provide an advice on other options that would modify the substance of the reverse solicitation regime. According to Maijoor, this could mean that non-EU investment firms would have to demonstrate to supervisory authorities in the EU, upon request, the client’s initiative. He also mentioned that it should be guaranteed that EU clients could submit any dispute “to EU Courts and dispute-resolution bodies”. The meaning of the latter recommendation is not entirely clear, but in the case of Switzerland this issue is presumably already settled, as a consequence of the Lugano Convention.

To the extent that ESMA is lobbying for such further reaching changes, this will likely only become more concrete after a more thorough review by the Commission, possibly on the basis of an in-depth advice from ESMA and/or a stakeholders consultation. Therefore, it is rather unlikely that these issues could be finalized before the EU general elections of the coming May and the subsequent appointment of the President and the College of the European Commission.

Inspections

The ECB published a legally non-binding “Guide to on-site inspections and internal model investigations”. The Guide’s objective is to provide a reference document for the supervised entities and other legal entities for which the ECB has decided to launch an on-site inspection, as well as for the work of the on-site inspection teams. The Guide describes the inspection process, from the decision to launch the inspection to the follow-up stage, and sets out best practices. It applies in particular to significant institutions, less significant institutions (if the ECB decides to exercise its right to take on the direct supervision of such institutions) and other legal entities referred to in the Single Supervisory Mechanism Regulation (SSM).

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The applicable principles for inspections include the right of investigators to access business premises, the right to request any information or document, the right to receive explanations as well as the right to contact the inspected legal entity’s statutory auditors for information. Furthermore, the national competent authority must provide necessary assistance, in accordance with national law, if anyone opposes the conduct of the inspection.

The inspection powers foreseen in the Guide are very extensive. However, the Guide is not legally binding and does not replace the legal requirements laid down in the relevant applicable Union law. Thus, it cannot confer any further rights to the ECB but merely sheds some light on the rules already provided for in the relevant Union law, in particular article 12 of the SSM-Regulation.

ESAs Review

It is doubtful whether the Council and Parliament will adopt the proposed reform of the European Supervisory Authorities (ESAS Review) before the elections for the European Parliament in May 2019.

On 12 September 2018, the European Commission proposed changes to the current anti-money laundering framework. In particular, it suggested to entrust anti-money laundering responsibilities in the financial sector to the European Banking Authority (EBA), giving it a more explicit and comprehensive mandate to ensure that risks of money laundering and terrorist financing in the Union's financial system are effectively and consistently incorporated into the supervisory strategies and practices of all relevant authorities.

According to the Commission’s proposal, the EBA could request national anti-money laundering supervisors to investigate potential material breaches and to consider targeted actions, such as sanctions. As a last resort, the EBA would be able to address decisions directly to individual

financial sector operators if national authorities do not act. Moreover, the amended legislation would allow the creation of common standards, periodic reviews of national supervisory authorities and risk-assessments. It would also establish a new permanent committee that brought together national anti-money laundering supervisory authorities. The Commission further stresses that there is a lack of common arrangements for the cooperation with third countries in relation to the anti-money laundering supervision of financial institutions and that the amended legislation would facilitate cooperation with non-EU countries on cross-border cases. The Commission is calling on the European Parliament and the Council to endorse its actions set out in the Communication and to adopt the relevant proposals by early 2019 at the latest.

In the beginning of October, the Ecofin Council declared that it “broadly” supported the Commission’s proposal. The ECON Committee of the European Parliament published two draft reports (link to the first report and link to the second report) on the proposal for amending the Regulations establishing the three European Supervisory Authorities (EBA, ESMA and EIOPA), thus confirming that the EBA will have anti-money laundering monitoring powers. Andrea Enria, Chair of the EBA and future chair of the ECB’s Supervisory Board, also favored the proposal to grant supervisory powers in the field of anti-money laundering to the EBA.

However, three political groups in the European Parliament - the European People’s Party (EPP), the Greens/European Free Alliance and the Alliance for Liberals and Democrats for Europe (ALDE) - have signaled that in the long run, they would prefer the creation of a new authority responsible for monitoring money laundering in the EU since the issue goes beyond banking. Moreover, there are some signs that several EU governments are not in favour of including the proposal for empowering the EBA with a supervisory role

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into the ongoing ESAs review as this would slow down the adoption of the review.

According to recent information, the Parliament seems now prepared to agree that the AML supervision proposal will be split from the ESAs review process. This could mean that the proposal of AML supervision would be prioritized, while the conclusion of the ESAs review would be postponed.

On 8 November 2018, the Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA) initiated a public consultation on draft Guidelines on the cooperation and information exchange between competent authorities supervising credit and financial institutions for the purposes of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) supervision.

Other EU Financial Services

Regulatory Matters

1. EUROPEAN CROWDFUNDING

SERVICE PROVIDERS

The European Parliament’s ECON Committee published a draft report from Rapporteur Ashley Fox on the proposal on European Crowdfunding Service Providers (CSPs), the first deliverable of the Commission’s Action Plan on how to harness the opportunities presented by FinTech. The proposed Regulation will allow platforms to apply for an EU label based on a single set of rules, which will enable them to offer their services across the EU.

Overall, the Rapporteur welcomes the proposal of the Commission as part of efforts to build a Capital Markets Union (CMU) but suggests a number of amendments. In particular, the draft report proposes to increase the threshold for crowdfunding offers that fall under the scope of the CSPs from EUR 1’000’000 to EUR 8’000’000. Furthermore, it suggests

that the primary supervisory responsibility should not be held by ESMA but remain with NCAs, within a common supervisory framework. The draft report also looks to differentiate between platforms facilitating the matching of investors and project owners, and platforms that determine the pricing and packaging of offers by requiring different disclosure requirements for each. The report also states that the proposed Regulation constitutes an opportunity to provide regulation for initial coin offerings.

Finally, the report suggests that third-country CSPs may offer their services in the EU if (a) the Commission has adopted an equivalence decision with regards to the country of establishment of the crowdfunding service provider; (b) the crowdfunding service provider is authorised to provide crowdfunding services in his home country, where he must be subject to supervision; and (c) cooperation arrangements with the third-country supervisors are in place and operational. As is usual in the case of equivalence, the CSPs must register with ESMA.

The draft report provides for reasonable amendments to the Commission’s proposal. It is particularly important for third-countries, and therefore also for Swiss CSPs. The review in the Council working party is ongoing.

2. BASEL III

o Basel III implementation

Trilogue negotiations between the Council, Parliament and the Commission on the implementation of Basel III are progressing. The issue of proportionality is not yet resolved. It seems the Council seems now ready in principle to yield to pressure from the Parliament for more relaxed capitalisation requirements for small and medium-sized institutes.

o EBA reports on Basel III implementation and liquidity measures

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On 4 October 2018, the EBA published two reports, which measure the impact of implementing Basel III reforms and monitor the current implementation of liquidity measures. The monitoring report assesses the impact on EU banks of the final revisions of credit risk, operational risk, and leverage ratio frameworks, as well as of the introduction of the aggregate output floor. It also quantifies the impact of the new standards for market risk (FRTB) and credit valuation adjustments (CVA). Beyond the impact of the final Basel III reforms, the report estimates the impact of implementing the net stable funding ratio (NSFR) framework and concludes that banks in the sample would need additional stable funding of EUR 27.8 billion to fulfill the minimum requirement.

The report on liquidity measures shows that EU banks have continued to improve their leverage coverage ratio (LCR). At the reporting date of 31 December 2017, the average LCR was well above the minimum requirements (both the minimum requirement of 80% in the interim phase and the minimum requirement of 100% under full implementation) and is increasing. EU banks' average LCR was 145% with only four banks with LCR levels below 100%. The average share of liquid assets (after haircuts and before the cap) relative to total assets is approximately 16% of total assets.

3. EUROPEAN DEPOSIT INSURANCE

SCHEME (EDIS)

The EDIS proposal is one of the priorities for the Austrian government, which holds the EU Presidency until the end of this year. Despite all the efforts of the EU presidency, the negotiations on EDIS are progressing slowly. Representatives of the Presidency are pessimistic about the chances to reach a compromise before the elections for the European Parliament in May next year.

The Director-General for Financial Stability, Financial Services and Capital Markets

Union (FISMA) Olivier Guersent deplored during a conference organised by the Single Resolution Board (SRB) that EDIS is deadlocked and that EU governments need another financial crisis to remind them why EDIS is necessary.

4. PAN-EUROPEAN PERSONAL

PENSION PRODUCTS (PEPPS)

The Think Tank of the European Parliament published a detailed briefing paper on the PEPP proposal.

According to current plans, PEPPs will be portable between EU Member States. PEPP savers would have the right to switch providers through a clear, low-cost, quick and safe procedure, thus also stimulating the competition among PEPP providers. The “Basic PEPP” will be a default investment option, which should be rather straightforward to buy for customers, including through digital channels in each Member State. The Basic PEPP should allow a saver to recoup the capital and its overall costs and fees should not exceed 1% of the accumulated capital per annum.

After the first round of trilogue negotiations between the Council, the Parliament and the Commission, the Council opposed calls from the European Parliament to appoint the European Insurance and Occupational Pensions Authority (EIOPA) as the chief authority in labelling PEPPs and deciding who can distribute them. EU Member States should rather have their own national authorities handle PEPP authorizations.

5. PROPOSAL ON SOVEREIGN

BOND-BACKED SECURITIES

(SBBS)

The Commission invited comments by interested market operators until 24 August 2018 on the Sovereign bond-backed securities (SBBS) proposal (also called European safe bonds - ESBies). Only seven

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comments were received, which were overall positive. Nonetheless, smaller EU Member States are concerned that the introduction of SBBS may not necessarily play in their favour.

The Think Tank of the European Parliament published a briefing on SBBS. This publication focuses on significant differences between the original European Systemic Risk Board (ESRB) proposal and the concept of SBBS, which no longer suggests institutional changes. The timeline for the adoption of this proposal remains unclear.

6. FINANCING SUSTAINABLE

GROWTH

As previously reported, on 24 May 2018, the Commission published several legislative proposals with regard to sustainable finance, including draft amendments to update the MiFID II Delegated Regulation as regards organisational requirements and operating conditions for investment firms. The new amendments to the MiFID II Delegated Regulation are likely to apply in late 2019.

To facilitate the adoption of its proposals on financing sustainable growth, the Commission has established a Technical Expert Group (TEG) on Sustainable Finance. The TEG is comprised of 35 members from civil society, academia, business and the finance sector, as well as additional members and observers from EU and international public bodies. The TEG should help the Commission establish a “sustainability taxonomy at the EU level and provide clarity on what is “green” or “sustainable”. The TEG will operate until June 2019.

Pursuant to the amendments proposed for the MiFID II Delegated Regulation, all investment firms operating on the EU market, including investment firms from the third-countries, will be obliged to take the

“sustainability taxonomy” into consideration when providing investment advice.

Once the “sustainability taxonomy” is in place, third-country investment firms operating on the EU market will also be obliged to improve the information regarding the sustainability factors of financial products that is given to the clients before the provision of investment advice and portfolio management services (ex-ante information disclosure). Third-country investment firms would also be obliged to provide clients with a general description of the nature and risks of financial instruments, taking into account in particular any sustainability considerations.

The EU as well as third-country businesses are concerned that the new classification system will contain a very narrow and formalistic interpretation of “sustainable taxonomy”. Another concern is that the proposed taxonomy system would not fit with the current investment techniques applied by investment firms in the EU.

Jurisdiction for Consumer

Claims

On 12 September 2018, the Court of Justice rendered a judgment on the issue of jurisdiction for consumer claims in the case Helga Löber v Barclays Bank PLC.

The bank issued ‘X1 Global EUR Index certificates’ in the form of bearer bonds, to which institutional investors subscribed. The investors then sold them on the secondary market, inter alia to consumers in Austria. The certificates were issued on the basis of a German ‘base prospectus’. The amount repayable was governed by an index made up of a portfolio of several target funds, so that the value of the certificates was directly linked with that portfolio. The portfolio concerned was to be established and administered by a company established in Germany.

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Helga Löber, domiciled in Vienna, invested in the certificates through two separate Austrian banks, one with its seat in Salzburg and the other with its seat in Graz. Given that the money invested in the certificates was used in a pyramid fraud scheme, the certificates had become worthless.

The Court of Justice held that article 5(3) of Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (now article 7(2) of Regulation 1215/2012) must be interpreted to the effect that in a situation in which an investor brings a tort action against the bank which issued a certificate, the courts of that investor’s domicile have jurisdiction to hear and determine that action. This is because the loss suffered occurred directly in the bank account with a bank established within the jurisdiction of those courts.

It is safe to assume that the same principles would apply to a similar case under the Lugano Convention between Switzerland, the EU, Norway and Iceland, given that the text of article 5(3) of the Convention is the same as article 5(3) of the above-mentioned Regulation 44/2001 (and therefore also of article 7(2) of the successor Regulation 1215/2012).

Anti-Money Laundering

1. DIRECTIVE ON COUNTERING MONEY

LAUNDERING BY CRIMINAL LAW

On 12 September 2018, the European Parliament adopted a legislative resolution on the proposal for a Directive on countering money laundering by criminal law. The Council then formally adopted the Directive on 11 October 2018. It establishes minimum rules for the definition of criminal offences and sanctions relating to money laundering. According to the Directive, money laundering activities will be punishable by a maximum term of imprisonment of minimum 4 years. Once the

Directive is published in the EU Official Journal, Member States have up to 24 months to transpose it into national law.

The Directive provides for a catalogue of crimes that constitute a predicate offence (the underlying criminal activity which generated the property laundered). Are deemed to be relevant predicate offences:

- any kind of criminal involvement in an offence punishable by deprivation of liberty or a detention order for a maximum of more than one year, or

- as regards Member States that have a minimum threshold for offences in their legal systems, any offence punishable by deprivation of liberty or a detention order for a minimum of more than six months.

The Directive also obliges the Member States to ensure that money laundering is punishable by a maximum term of imprisonment of at least four years. They shall also provide for additional sanctions or measures, such as fines, exclusion from access to public funding, temporary prohibition from engaging in commercial activity or temporary bans on running for elected office or public office.

Under Swiss law, money laundering requires that the predicate offence carries a custodial sentence of more than three years or constitutes an aggravated tax misdemeanour. The maximum sentence is imprisonment of maximum three years. It cannot be ruled out that differences between EU and Swiss rules could come to the attention of the EU institutions, in particular the European Parliament, which is always quick to point out enforcement deficits in non-EU countries.

2. RECENT EU AML CASES

o Danske Bank

On 19 September 2018, Danske Bank published the results of an internal investigation into money laundering

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activities through its Estonian branch. The investigation report shows that in fact money laundering seems to have taken place through the Estonian Branch. Moreover, the report deemed the vast majority of the 6’200 customers to be “suspicious”. The former CEO of Danske Bank, Thomas Borgen, has resigned due to this money laundering scandal.

The European Commission stated that the role of the Danish supervisor, responsible for the compliance with group-wide AML/CFT policies and procedures, remained unclear and raised questions as to whether the Danish supervisor had conducted an effective supervision. It further questioned whether the exchange of information between the Danish and Estonian supervisors had been adequate. Therefore, the Commission called on the EBA to investigate the conduct of the Estonian and Danish supervisors regarding possible breaches or non-application of Union law.

Finally, the US authorities have launched an investigation into Danske Bank’s “non-resident” portfolio in Estonia, which follows the revelations made in the bank’s internal report on money laundering.

o Malta

Following a request to investigate a possible breach or non-application of Union law by the Maltese competent authorities in relation to Pilatus Bank, the EBA informed the European Commission and the Parliament on 24 September 2018 on the outcome of its enquiry into the application of AML rules and regulations by the Malta Financial Services Authority (MFSA). The EBA decided not to open an investigation regarding the MFSA. However, it stated that MFSA’s practices should be improved and identified several key areas. The EBA therefore asked the MFSA for updates on a quarterly basis.

The Commission has since adopted an opinion reminding the Maltese anti-money laundering supervisor (FIAU) of its

responsibilities. The FIAU has reassured the Commission that the necessary measures were being taken.

Taxation

1. SPECIAL COMMITTEE ON

FINANCIAL CRIMES, TAX

EVASION AND TAX AVOIDANCE

(TAX3)

o Hearing of Chair of Code of Conduct Group

On 10 October 2018, the European Parliament’s TAX3 Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance had an exchange of views with Fabrizia Lapecorella, Chair of the Code of Conduct Group on Business Taxation. The purpose of the hearing was to discuss the work of the Code of Conduct Group, notably regarding the EU list of non-cooperative tax jurisdictions, potential aggressive tax measures of individual EU Member States and the transparency with regard to the discussions between the EU Member States representatives in the Group.

Fabrizia Lapecorella made an overall presentation of the Group’s work in the year 2018 and described the process of de-listing of tax jurisdictions, as well as the cooperation with non-EU jurisdictions. She noted that most of the non-EU jurisdictions concerned had chosen to cooperate with the EU and that the positive approach chosen by the Group had led to a constructive engagement with many jurisdictions around the world.

Discussions on a revision of the mandate of the Code of Conduct Group are ongoing and there is a new webpage of the Group with links to all publically available documents, including 46 letters addressed by the Group to non-EU jurisdictions.

The Members of the European Parliament present expressed concern about the

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perceived lack of transparency of the Group. They wished to be able to see how the EU Member States influenced the decision-taking process in the Group. They deplored that the Parliament was unable to exercise scrutiny. However, the EU Member States are unlikely to give in to demands for more transparency, given that the Code of Conduct Group is a joint vehicle of the EU Member States with no power for the Parliament.

Member of the European Parliament (MEP) Pervenche Berès asked Ms. Lapecorella whether there was a risk that Switzerland could be moved to the so-called “black list”. Fabrizia Lapecorella replied that the Group needed to agree on the assessment of the legislation proposed by the Swiss Government. If there was a referendum, this would impact on the timing and the Code of Conduct Group and Switzerland would decide what needed to be done, including a possible postponement of the deadline for Switzerland. MEP Peter Simon complained that Switzerland was treated more favourably than certain smaller jurisdictions, which had to abide by a strict deadline until the end of 2018.

o Hearing on Swiss-EU relations

On 1 October 2018, the TAX3 Special Committee held a public hearing on EU-Swiss relations in the tax and anti-money laundering areas. The invited speakers were Dieter Kischel (Head of Sector, Harmful Tax Practices, DG TAXUD), Rudolf Elmer (whistle-blower, ex-Julius Bär) and Andreas Frank (invited as an “anti-money laundering expert”, ex-Goldman Sachs). The latter two used the platform to launch verbal attacks on the Swiss financial regulatory regime and on the Swiss financial services industry in general.

2. SWISS CORPORATE TAX REFORM

With letter dated 9 October 2018 and addressed to Valère Moutarlier, Director for Direct Taxation, Tax Coordination, Economic Analysis and Evaluation within

the Commission’s Directorate-General (DG) TAXUD, the State Secretariat for International Financial Matters (SIF) informed about the Swiss corporate tax reform. The SIF informed about the adoption of the reform by the Swiss Federal Parliament and explained the timetable for a potential referendum.

Referring to a statement of the Federal Council of 28 September 2018, the SIF explained that in the case of a referendum, the vote would take place on 19 May 2019. Furthermore, it clarified that the main part of the reform, which includes the abolishment of specified tax regimes, is to enter into force on 1 January 2020, on condition that the federal tax reform bill will be accepted in a potential referendum. By that date, the federal tax reform bill will supersede any conflicting cantonal laws and, therefore, cantonal tax regimes specified in the Joint Statement on company tax issues and on the way forward will no longer exist. Attached to the letter was a detailed timetable of a potential referendum.

The Code of Conduct Group takes in particular issue with the fact that Switzerland delays the abolition of two corporate tax regime at federal level which are not based on a federal law and therefore would not legally be affected by a referendum. The Group has mandated the Commission to explore this issue with Switzerland. The Commission will report on its findings during the Group’s next meeting on 14 November 2018 in Brussels.

3. RISK ASSESSMENT

It can currently not be ruled out completely that Switzerland could be placed on the EU list of non-cooperative jurisdictions for tax purposes (“black list”), should a referendum result in a rejection of the corporate tax reform.

In addition, the Commission would like to convince EU Member States to adopt coordinated measures, including CFC measures, against those non-EU countries

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that do not abolish supposedly harmful tax regimes before the end of the year. It seems currently unlikely that the Commission will reach that goal. However, EU observers assume that foreign investors, particularly from the US, could be forced to reconsider investment in supposedly “problematic” countries for compliance reasons.

Data Protection

1. INTERNATIONAL DEVELOPMENTS

INVOLVING SWITZERLAND

When the EU revised its original adequacy decision for Switzerland in 2016, it did so with the understanding that Switzerland would provide a report in 2017 and from then on annual follow-up reports. On 2 October 2018, Switzerland sent the first follow-up report to the European Commission.

The Commission would also be able to address questions to Switzerland directly but does not seem to do so very frequently. It has been more often in contact with other countries, such as Canada.

As is widely known, the data protection legislation in Switzerland is being revised and should enter into force on 1 January 2019. Certain discrepancies between the Swiss and EU regime concern the right to be forgotten (article 17 GDPR) and the right to data portability. However, the main issue that has been voiced by the EU concerns the level of sanctions. While the modified Swiss Data Protection Act provides for a maximum fine of CHF 500’000, the EU GDPR provides for fines of up to EUR 20’000’000, or in the case of an undertaking, up to 4 % of the total worldwide annual turnover of the preceding financial year, whichever is higher.

It could be argued that it would be beneficial for the perception of Switzerland in the EU if the Swiss legislator were to switch to a system with administrative fines, of an

equivalent scale as the fines applicable in the EU.

2. ADEQUACY DECISIONS FOR

OTHER JURISDICTIONS

The European Commission has so far recognized 12 jurisdictions in total as providing adequate protection of personal data. The adoption procedure of the adequacy decision concerning Japan was launched on 5 September 2018. The case of Japan provides guidance on the threshold that has to be met for an adequacy decision under the EU GDPR.

With regard to the UK, there seem to be no legal reasons not to issue an adequacy decision after Brexit, given that the UK currently applies the GDPR. However, political uncertainty remains.

The Commission is responsible for drafting reports regarding the adequacy of all jurisdictions concerned, including Switzerland, until 15 May 2020. Several involved parties are under the impression that this will be a global report for 12 countries in total, rather than individual reports for each country.

3. OTHER EU DATA PROTECTION

DEVELOPMENTS

During the third plenary on 25 and 26 September 2018, the European Data Protection Board adopted new draft guidelines, which aim to provide a common interpretation of the territorial scope of the GDPR and a further clarification on its application in various situations, in particular, if the data controller or processor is established outside of the EU, including on the designation of a representative.

On 18 and 19 October 2018, the second annual joint review of the EU-US Privacy Shield Framework took place in Brussels. Right after the event, Věra Jourová, Commissioner for Justice, Consumers and

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Gender Equality and Wilbur Ross, the US Secretary of Commerce, issued a joint statement. The Commission will publish a report on the functioning of the EU-US Privacy Shield by the end of this year.

4. SWISS-US PRIVACY SHIELD

On 20 October 2018 the second annual joint review of the Swiss-US Privacy Shield Framework took place in Brussels and is said to having been constructive and positive. Most notably, the Swiss delegation, composed by representatives of SECO and the Federal Data Protection and Information Commissioner (FDPIC), had the chance to meet with the Privacy Shield Ombudsperson Manisha Singh. The FDPIC is preparing a report which is expected to get published until the end of the year. Furthermore, on 12 October 2018, the US Senate has confirmed the three missing members of the Privacy and Civil Liberties Oversight Board (Edward Felten, Jane Nitze and Adam Klein), which is seen as a sign of confirmation of interest in the Privacy Shield. At the moment, over 2400 companies participate in the Swiss-US Privacy Shield.

Cybersecurity

In October this year, the cybersecurity package, which the Commission had adopted last year to further improve EU cyber resilience, was back in the spotlight when several EU Member States issued a coordinated denunciation of Russia, accusing it of running a global hacking campaign.

The European Agency for Network and Information Security (ENISA) has a key role to play in enhancing cyber resilience in the EU. A proposed Regulation included into the cybersecurity package aims at strengthening the ENISA’s role as follows:

o ENISA will have a permanent mandate to support Member States, EU institutions and businesses in key

cybersecurity areas. This agency will be tasked with proactively contributing to the development of policy in the area of network information security, as well as to other policy initiatives with cybersecurity elements in different sectors, including the financial sector.

o ENISA will be able to provide independent opinions and preparatory work for the development of new EU legislative initiatives and policies.

o In the implementation phase, ENISA will assist EU Member States in achieving a consistent approach on the implementation of the EU rules. The agency will also provide regular reporting on the state of implementation of the EU legal framework.

o ENISA will also be required to contribute to the establishment of Information Sharing and Analysis Centres (ISACS) in various sectors by providing best practices and guidance on available tools and procedures, as well as by appropriately addressing regulatory issues related to information sharing.

The package also envisages the creation of the first voluntary EU cybersecurity certification framework for information and communication technologies (ICT) products. The general purpose of an EU certification scheme is to attest that the ICT products and services that have been certified in accordance with such scheme comply with specified cybersecurity requirements. The EU cybersecurity certification schemes will be prepared by ENISA and adopted by the Commission. The primacy of European cybersecurity certification schemes over national schemes will be established.

However, some concerns were raised by the stakeholders on the initial proposal published by the Commission regarding the fragmentation arising from different

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regulations and supervisors. For example, possible duplication of responsibilities between the European Data Protection Board (EDPB) and ENISA must be avoided.

In May, Member States agreed on the general approach of this legislative proposal. In June, the Council adopted its position and a mandate to begin negotiations with the European Parliament. The European Parliament adopted its report on this legislative initiative in July, together with the decision to start negotiations with the Council.

The interinstitutional negotiations (trilogues) on this legislative proposal have commenced in September. At the moment it is not clear whether this new Regulation will be adopted before or after the elections of the European Parliament.

Elections / Appointments

o Candidates for Presidency of the Commission

Based on the results of the elections for the European Parliament in May 2019, the future President of the European Commission should be appointed from a list of “lead candidates” (Spitzenkandidaten). The Spitzenkandidat process is based on a political agreement between the main political parties, the European Council and the European Parliament. Some Member States (e.g. France) are not in favour of the Spitzenkandidat system because in their view, it is lacking democratic legitimacy.

The main political groups of the European Parliament already started discussions about their possible candidates.

The European People’s Party (EPP) preferred Manfred Weber (a German CDU politician who serves as chair of the EPP group in the European Parliament) over Alexander Stubb (the former Prime Minister of Finland) at the EPP congress on 7 and 8 November 2018 in Helsinki.

On 7 and 8 December, the Party of European Socialists (PES) will choose its Spitzenkandidat. The following names are being mentioned: Frans Timmermans (former Dutch foreign minister and current First Vice-President of the European Commission), Maros Sefcovic (former Slovak diplomat serving as Vice-President of the European Commission) and Ska Keller (a German politician and Member of the European Parliament).

The Alliance of Liberals and Democrats for Europe (ALDE) has yet to decide whether it will nominate a Spitzenkandidat. At present, this seems unlikely.

o Chair of the ECB Single Supervisory Board

On 7 November 2018, Andrea Enria (Chair of the European Banking Authority – EBA) was nominated as Chair of the ECB’s Supervisory Board. He will replace Danièle Nouy in this position, provided the Parliament supports the nomination and the appointment is finally confirmed by the Council.

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Swiss-EU key dates

2018

November

7.- 8.11.2018 European People’s Party (EPP) Congress in Helsinki – election of conservative “Spitzenkandidat” for post of Commission President

14.-15.11.2018 Code of Conduct Group (Business Taxation) meeting

16.11.2018 (tbc) Vote on the ESAs review proposal in the European Parliament’s Plenary

End of November

Brexit deal Summit? (tentative, currently unlikely)

December 3.12.2018 Non-performing exposures

Vote in ECON Committee on Commission proposal concerning minimum loss coverage for non-performing exposures

7.- 8.12.2018 Party of European Socialists (PES) Congress in Lisbon – election of socialist “Spitzenkandidat” for post of Commission President

13.- 14. 12.2018 EU Summit - Brexit deal? (tentative)

Before the end of

Article 23 MiFIR: Last opportunity for Commission to take decision on extension of equivalence for Swiss stock exchanges

2018 Corporate Taxation: EU time limit for compliance with commitments under “black” and “grey” lists of non-cooperative tax jurisdictions

2019

January

1.01.2019 Handover of EU Presidency from Austria to Romania

End of January (tbc)

Ratification of the Brexit Deal by the House of Commons and the European Parliament? (tentative)

March

(tbc) EU Summit

29.03.2019 Brexit to take effect at midnight

end of March or earlier

Council Conclusions on Swiss-EU relations Capital requirements: Adoption of CRR II and CRD V? Adoption of EDIS - European Deposit Insurance Scheme?

May

23.-26.05.2019 Elections for European Parliament

June

30.06.2019 “Basel IV”: Commission’s preferred date for receiving EBA’s advice on certain aspects of “Basel IV”

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

8 – 12 October 2018

SWISS-EU RELATIONS – TAX POLICY

On 9 October, the SIF sent a letter with a progress report on the adoption of the Swiss corporate tax reform to the

Commission.

On 10 October, the Special Committee on Financial Crimes of the European Parliament (TAX3) held a hearing

with Ms. Fabrizia Lapecorella, Chair of the Code of Conduct Group on Business Taxation (a recording of the

meeting is available here). Parliament Member Ms. Pervenche Berès asked whether there is a risk that

Switzerland will be moved into the so-called “black list” of tax jurisdictions. She also asked how the deadlines for

the de-listing are managed. Parliament Member Peter Simon asked why the EU was treating Switzerland more

leniently than other smaller countries and argued that it was not the EU’s problem if Switzerland had internal

difficulties to pass the corporate tax reform by the end of the year. Ms. Lapecorella remained calm throughout the

hearing and replied in a measured manner.

On 12 October, the Code of Conduct Group met to discuss the state of play with regard to the “black” and “grey”

lists of non-cooperative tax jurisdictions.

BREXIT

There is a moderate optimism about the outcome of Brexit negotiations. It is expected that a compromise will be

achieved next week at the Brexit EU Summit. Mr. Michel Barnier confirmed that both the EU and the UK are now

trying to maximise the chances of an orderly withdrawal and minimise the costs of Brexit.

The UK government published additional guidance papers to prepare businesses for a no-deal Brexit, including

documents on accounting and audit, sanctions policy and “existing free trade agreements if there’s no Brexit deal”.

FINANCIAL SERVICES

In the ongoing EU investment firm review, the Austrian EU Presidency published two compromise proposals on

the prudential requirements and the prudential supervision of investment firms, to prepare for next week’s meeting

of the Council’s Working Party on Financial Services (links to Cover Note, Draft Directive and Draft Regulation).

Importantly, the Austrian EU Presidency does not support the French proposal for the introduction of a branch

requirement for non-EU investment firms.

The Parliament’s ECON Committee had an exchange of views with the Chairs of the three European Supervisory

Authorities (ESAs). Mr. Steven Maijoor, Chair of ESMA and of the Joint Committee of the ESAs said that next year

the EBA and ESMA will focus on the Capital Markets Union, the Banking Union, as well as on sustainable finance,

anti-money laundering and on Brexit. The Chair of the EBA Mr. Andrea Enria argued in favour of transferring

supervisory powers in the field of anti-money laundering to the EBA.

The EBA published two reports, which measure the impact of implementing Basel III reforms and monitor the

current implementation of liquidity measures in the EU.

The Danish Supervisory Authority notified the EBA of the resolution of Københavns Andelskasse.

DATA PROTECTION

Gordon Sondland, the new US Ambassador to the EU, said that the US is abiding by EU data protection rules and

has an ombudsman to monitor complaints in the field. Therefore, the concerns raised by the Commission against

data protection standards in the US should not be discussed any further.

The second annual joint review of the EU-US Privacy Shield Framework as well as the second annual joint review

of the Swiss-US Privacy Shield Framework will take place next week.

ANTI-MONEY LAUNDERING

The Council adopted a new Directive on countering money laundering by criminal law. It establishes a catalogue

of predicate offences for money laundering and in addition provides that any kind of criminal involvement in any

offence punishable by deprivation of liberty for a maximum of more than one year or six months respectively

(depending on the legal systems of the Member States) constitutes a predicate offence. Money laundering

activities will be punishable by a maximum term of imprisonment of at least 4 years. After publication, Member

States have up to 24 months to transpose it into national law.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

1 – 5 October 2018

SWISS-EU RELATIONS Answering a parliamentary question, Commission Vice President Valdis Dombrovskis stated that the decision to

grant equivalence to Swiss trading venues needed to be assessed against the background of the institutional

negotiations. A decision on the renewal of equivalence for Swiss stock exchanges beyond December 2018 is to

be taken in the course of 2018 in light of the progress in the negotiations with Switzerland.

BREXIT Steven Maijoor, chair of ESMA, warned that a no-deal Brexit means that there will be no legal basis anymore for

the extensive and granular daily data exchange between the UK and the EU-27. Given the importance of the UK

financial market, a no-deal Brexit would affect MiFID II calibrations and may trigger some significant effects.

FINANCIAL SERVICES ESMA published a letter addressed to the European Commission that calls on tightening a number of rules related

to how non-EU firms offer investment services in the single market. It states that while those issues were initially

identified in the context of the Brexit debate, they should apply beyond that. ESMA suggests revising MiFID II

rules relevant to the delegation and outsourcing. Also, in ESMA’s view, the MiFIR rules allowing third-country firms

to provide investment services to professional clients and eligible counter-parties under the Member States’

regimes in the absence of an equivalence decision do not ensure a consistent and convergent level of protection

to investors. It calls on the Commission to reconsider how MiFID II allows for reverse solicitation. The Authority

also suggests that the national regimes applicable to EU retail clients might have to be harmonised further.

The European Parliament has published an updated briefing paper on third-country equivalence and financial

regulation, providing an insight into the latest regulatory developments on equivalence in EU banking and financial

regulation, including elements of the on-going ESAs review, the Investment Firm Review, and EMIR 2.2. This

publication also gives an overview on the possible role of equivalence regimes in the context of Brexit.

The Council has adopted a regulation aimed at improving the existing system of controls on cash entering or

leaving the EU. The new legislation extends the definition of cash to cover not only banknotes but also other

instruments or highly liquid commodities such as cheques, traveller's cheques, prepaid cards and gold. The

regulation is also extended to cover cash that is sent by post, freight or courier shipment.

DATA PROTECTION The Swiss annual report regarding data protection was sent to the European Commission. Switzerland provided

an initial report in 2017 and will continue to provide such reports annually.

ANTI-MONEY LAUNDERING The European Parliament’s ECON committee confirmed that the EBA will have Anti-Money Laundering monitoring

powers. The Member States representatives meeting in the Ecofin Council seem broadly to support this idea. It is

planned to integrate the proposal in the on-going review of the European Supervisory Authorities (ESAs Review).

The EU, for the first time, will order Malta to strengthen enforcement of its anti-money laundering rules. By mid-

November, the Commission will publish a formal opinion on action that must be taken by Malta.

The US authorities have launched a criminal investigation into Danske Bank’s “non-resident” portfolio in Estonia,

which follows the revelations made in Danske Bank’s internal report on money laundering.

TAX The European Parliament’s TAX3 Special Committee conducted a hearing on Swiss tax practices, which provided

former whistleblower Rudolf Elmer and Mr. Andreas Frank with a platform to launch verbal attacks.

The EU Finance Ministers have reached an agreement on VAT legislative proposals regarding the optional

reverse charge mechanism (RCM), VAT for e-books and the so-called “quick fixes”. The European Parliament

also voted in favor of the VAT system reform aiming to facilitate trade and to set-up a clearer system of VAT rates.

The Council confirmed that Liechtenstein and Peru have complied with their commitments for tax cooperation.

Pierre Moscovici, Commissioner for taxation, stated that as long as the UK and Gibraltar remain part of the EU,

they are also required to comply with the Code of Conduct on Business Taxation.

Doc. # EMEA-3053695 v.2 jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

24 – 28 September 2018

BREXIT

The President of the European Council Donald Tusk took the view that the UK’s stance presented just before and

during the Salzburg Summit last week was surprisingly categorical and inflexible. The EU had responded by

reiterating its trust in the Chief Negotiator, Michel Barnier, and confirmed the EU’s position on the integrity of the

Single Market and the Irish backstop.

FINANCIAL SERVICES REGULATION

The European Parliament’s ECON Committee has adopted two reports from Rapporteur Markus Ferber on the

proposed Investment Firm Review (IFR). The Committee has followed the Rapporteur’s recommendation to

exclude “on own account dealing” and “underwriting” from the scope of any future equivalence decisions

according to article 46 MiFIR. A proposed review clause provides that the provisions of articles 46 and 47 MiFIR

could be adapted if the EU institutions were to decide on a new consistent framework for equivalence in financial

services. The Council has yet to adopt a formal position on the IFR proposals.

ESMA has updated its Q&A on EMIR.

The ESMA Securities and Market Stakeholder Group has published an advice to ESMA on sustainable finance.

DATA PROTECTION

The European Commission has published a Draft Adequacy Decision on the transfer of personal data from the EU

to Japan. Japan has committed to implementing the following additional safeguards to improve the protection of

personal data transferred to Japan: (a) additional safeguards to bridge differences between the EU and the

Japanese data protection systems; (b) safeguards concerning the access of the Japanese public authorities for

criminal law enforcement and national security purposes; and (c) a complaint-handling mechanism to investigate

and resolve complaints by European data subjects regarding access to their data by the Japanese public

authorities.

ANTI-MONEY LAUDERING

The EBA has notified the European Commission and the Parliament on the outcome of its enquiry into the

application of AML rules and regulations by the Malta Financial Services Authority (MFSA). The EBA has decided

to close the file. However, significant concerns were identified regarding supervisory and authorisation processes.

The MFSA will now provide quarterly reports to the EBA on the steps taken to remedy the deficiencies.

The European Commission has asked the EBA to investigate the conduct of the Estonian as well as the Danish

supervisors to determine the cause for the failure to detect money-laundering activities of the Estonian branch of

Danske Bank.

WHISTLEBLOWER PROTECTION

The ECON Committee has postponed the vote on a controversial opinion relating to the proposed Directive on the

protection of whistleblowers. The Directive should protect whistleblowers reporting on observed or suspected law

breaches, wrongdoing and threats to the public interest. It covers, inter alia, financial services, the prevention of

money laundering and of terrorist financing, and the protection of privacy and personal data.

TAX

The Council of the EU will confirm next week that Liechtenstein and Peru have complied with their commitments to

remove harmful corporate tax schemes and therefore will be removed from the so-called “grey list” of non-

cooperative tax jurisdictions.

The EU Finance Ministers are due to tackle VAT legislative proposals regarding the optional reverse charge

mechanism (RCM), VAT for e-books and the so-called “quick fixes”. The measures must be adopted by unanimity.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

17 – 21 September 2018

SWISS-EU RELATIONS

The Commission has cancelled this year’s Swiss-EU Regulatory Dialogue, which had been planned for October.

Whether or not the equivalence decision for the Swiss stock exchanges will be extended beyond the end of this

year is still undecided.

BREXIT

After the disappointing conclusion of the informal EU summit in Salzburg, Council President Donald Tusk declared

that “the moment of truth for Brexit negotiations will be the October European Council. In October we expect

maximum progress and results in the Brexit talks. Then we will decide whether conditions are there to call an

extraordinary summit in November to finalise and formalise the deal.”

The chair of the EBA Mr. Andrea Enria said in a speech that EU banks must push ahead on hard-Brexit

contingency planning. The banks should prepare for the loss of passport for their activities in the UK. The extent to

which banks will need to duplicate their operations will be “somewhat dependent” on the final Brexit deal and

levels of cooperation between the EU-27 and the UK regulatory authorities. He also criticized the slow progress in

the completion of the EU Banking Union

FINANCIAL SERVICES REGULATION

The Council’s Working Group on Financial Services has discussed the proposed EU investment firm review.

The French Delegation elaborated on the Non-Paper that it had circulated earlier this year. The Delegation

expressed concerns about perceived deficiencies of the EU equivalence for non-EU investment firms wishing to

provide investment services to eligible counterparties and professional clients. If equivalence according to articles

46/47 MiFIR would ever be granted – which has not been the case so far – then this would, according to France,

jeopardize the level playing field and market integrity and it would not be possible to guarantee enforcement

against non-EU firms. The French representatives demanded among other things that non-EU investment firms be

required to set up branches in the EU, under ESMA supervision and benefitting from an EU passport. The French

proposals were met with a certain degree of scepticism. During the same meeting, the ECB presented its opinion

of 22 August, with its own recommendations for changes to the EU equivalence regime.

Meanwhile, the Parliament’s ECON Committee is due to adopt the two draft reports on the topic from rapporteur

Markus Ferber on Monday (link to agenda).

The Court of Justice of the EU rendered a judgment on the issue of jurisdiction for consumer claims in the case

Helga Löber v Barclays Bank PLC. The case concerned Barclays Bank, which had issued ‘X1 Global EUR Index

certificates’ in the form of bearer bonds. Institutional investors had subscribed to the certificates and then sold

them on the secondary market. A customer in Austria who had subscribed to the certificates through two Austrian

banks claimed to have suffered losses. She brought an action against Barclays in Austria. In its judgment, the

CJEU confirmed that the Austrian courts had jurisdiction, in particular because the claimant had her domicile in

Austria and the alleged loss had affected her bank accounts there. It is safe to assume that the same principles

would apply to a similar case under the Lugano Convention between Switzerland, the EU, Norway and Iceland.

DATA PROTECTION

Vice-President of the European Commission Mr. Valdis Dombrovskis gave an evasive reply to a parliamentary

question on FATCA. He avoided a statement on the compatibility of FATCA with the EU’s Payment Accounts

Directive and data protection rules. According to the Commission, national data protection authorities of the EU

Member States have so far not prohibited the processing and the transfer of personal data to the US under the

FATCA regime.

ANTI-MONEY LAUDERING

The CEO of Danske Bank has resigned over allegations that billions of illicit money from former Soviet states had

been laundered through the Estonian branch of Danske Bank. The information available from an independent

audit report revealed that the Estonian branch had done business with at least 6,200 "suspicious" clients. These

allegations could lead to the country's sovereign debt rating downgrade due to a loss of faith in the Danish

financial system, raising national borrowing costs.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

3 – 7 September 2018

SWISS-EU RELATIONS

EU negotiators take the view that the burden is on Switzerland to find a way out of the impasse in the institutional

negotiations. They are waiting for the outcome of the Swiss internal consultation on the accompanying measures.

TAXATION

The EU currently makes a distinction between so-called “black” and “grey”-listed non-cooperative tax jurisdictions.

The “grey” list is reserved for those jurisdictions that have made sufficient commitments to remove problematic tax

schemes by the end of this year. There are indications that the European Commission would prefer to abolish the

“grey” category by the end of this year, although it is not clear whether this view is shared by the Member States. It

remains to be seen whether this could mean that Switzerland could be moved from the “grey” to the “black”

category in a worst-case scenario if the Council’s Code of Conduct Group was not satisfied with the Swiss efforts

to adopt the corporate tax reform.

BREXIT

The UK government has published a policy paper on the future EU-UK partnership in Financial Services. In the

UK’s view, the existing EU third-country regime based on equivalence is not adapted to deal with the challenges

posed by Brexit for the UK and the EU. The UK refers among other things to the EU-Japan Free Trade

Agreement, which in the UK’s view constitutes a good precedent. In the Commission, the UK’s proposal has

generally been welcomed as more realistic, compared with the UK’s earlier attempts to bypass equivalence.

FINANCIAL SERVICES REGULATION

The European Parliament’s Committee for Economic and Monetary Affairs (ECON) is due to discuss a draft report

on the proposed new rules for covered bonds on Monday 10 September 2018.The report suggests in particular

that market access barriers for issuers outside the EEA “should be removed by providing equitable treatment to

covered bonds from issuers in third countries, provided their legal, institutional and supervisory environment

passes a thorough equivalence assessment by a competent European institution”. The report further states that “it

is imperative to establish an equivalence regime (…) without undue delay”. Meanwhile the Parliament’s research

service has published a briefing paper on covered bonds.

The European Parliament’s Committee for Economic and Monetary Affairs (ECON) has adopted a report in favour

of the introduction of Pan-European Personal Pension Products (PEPPs) (link to press release).

Yves Mersch, Member of the Executive Board of the ECB, has voiced his concerns that cross-border payment

services in Europe are dominated by non-European providers. According to Mersch, Europe is fully reliant on non-

European schemes when making cross-border card payments and there is a risk that the dependence on foreign

providers will increase in the future (link to speech).

The European Parliament’s research service has published several briefing papers, including on illicit capital flight

from developing countries (link to the report in French), the controversial proposal of sovereign bond-backed

securities, and the new rules for the cross-border distribution of collective investment funds.

The Council’s ad hoc Working Party on the Strengthening of the Banking Union will continue the discussion on the

proposal of a European Deposit Insurance Scheme (EDIS) on 17 September 2018 (see agenda).

The ECB has imposed on Crédit Agricole a EUR 4.8 million fine over past irregularities in the way it declared its

capital reserves.

ANTI-MONEY LAUNDERING

According to a non-public Reflection Paper of the Commission, the ECB and the European Surveillance

Authorities, the EBA’s ability to supervise anti-money laundering issues should be strengthened. A possible

centralization of AML supervision via an existing or a new EU body should be considered in the longer term.

The Parliament’s research service has published a one-pager on “Countering money laundering with criminal law”.

NOTEWORTHY

On Wednesday 12 September 2018, Jean-Claude Juncker will deliver his State of the Union Address at the

European Parliament in Strasbourg.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

13 – 17 August 2018

SWISS-EU RELATIONS As most EU officials are on holiday, the EU institutions are largely indifferent to the current turmoil affecting

Swiss internal politics in connection with the accompanying measures. EU services will assess later this

month or in early September whether the Swiss developments warrant any reaction at this stage. Meanwhile

the General-Secretariat of the Council of the EU is preparing the Council’s conclusions on Switzerland, due

to be adopted before the end of the year, and which will no doubt address the issue of accompanying

measures. The last conclusions of this kind date from February 2017.

BREXIT As the EU’s self-imposed deadline for a deal with the UK by October 2018 approaches, the public predictions

of a possible no-deal scenario multiply. According to the credit ratings agency Fitch, a no-deal Brexit is a

“material and growing possibility”. The UK government will publish a series of notes on the consequences of

a no-deal for a range of sectors including the financial services industry, starting from next week.

This week’s technical meetings between EU and UK negotiators focussed on the Irish border issue, which

continues to delay negotiations, and the future relationship. The EU’s chief negotiator Michel is due to meet

UK Brexit Secretary Dominic Raab next Tuesday in Brussels.

FINANCIAL SERVICES The European Parliament’s ECON Committee published a draft report from Rapporteur Ashley Fox on the

proposed Regulation on European Crowdfunding Service Providers (CSPs). The report suggests that third-

country CSPs may offer their services in the EU if (a) the Commission has adopted an equivalence decision

with regards to the country of establishment of the crowdfunding service provider; (b) the crowdfunding

service provider is authorised to provide crowdfunding services in his home country, where he must be

subject to supervision; and (c) cooperation arrangements with the third-country supervisors are in place and

operational. As is usual in the case of equivalence, the CSPs must register with ESMA.

The Commission’s Directorate-General FISMA has asked the European Supervisory Authorities EIOPA and

ESMA for technical advice on the possible modification or adoption of delegated acts (level 2 measures) to

enhance the impact of the proposed legislative package on sustainable finance. The objective is to

incorporate sustainability risk criteria (i.e. criteria concerning environmental, social and governance risks) in

measures adopted under UCITS, AIFMD, MiFID II, Solvency II and IDD. The advice is due by 30 April 2019.

EBA will hold a public hearing on the outsourcing draft guidelines on 4 September 2018. Interested parties

may respond to the ongoing consultation until 24 September 2018.

The CJEU has issued a preliminary ruling in the case VTB Bank (Austria) AG and the Austrian

“Finanzmarktaufsichtsbehörde”. The ruling concerns the exposure limits according to article 395(1) of the

Capital Requirements Regulation (CRR). The Court clarifies that an EU national authority may not

automatically levy interest (“Abschöpfungszinsen”, “intérêts de recouvrement”), without regard to other

circumstances, if a credit institution exceeds the exposure limits.

The EBA has updated the guidelines on the handling of consumer complaints by banks and other financial

institutions. The scope of application of the guidelines has been extended to include payment initiation

service providers and account information service providers (AISPs) within the meaning of the revised

Payment Service Directive (PSD2), as well as credit intermediaries and non-credit institution creditors under

the Mortgage Credit Directive (MCD).

The EBA has updated data used for the identification of global systemically important institutions (G-SIIs) in

the EU Member States. The update concerns the 35 largest credit institutions in the EU whose leverage ratio

exposure measure exceeds EUR 200 bn.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

6 – 10 August 2018

SWISS-EU RELATIONS The European Commission and External Action Service (EEAS) have noted the refusal by the Swiss trade unions

to participate in the roundtable on the accompanying measures. But apart from a non-committal response by a

Commission spokesperson to a question from a Swiss journalist, there has been no official reaction by EU

services so far. If there were to be an official statement, this would only add to the Swiss internal controversy. The

EU and its Member States wish that Switzerland accepts the Directive on the posting of workers including related

EU provisions, and the Swiss measures shall be subject to review by the future arbitration body and the CJEU.

The Swiss and EU chief negotiators are normally due to discuss the current state of play by the end of this month.

FINANCIAL SERVICES REGULATION ESMA has replied to questions from EIOPA regarding the definition of leveraged AIFs and the treatment of so-

called sub-threshold AIFs that are registered with EU national competent authorities under AIFMD.

ESMA has found shortcomings in the local supervision of efficient portfolio management by UCITS in Estonia,

France, Germany, Ireland, Luxembourg and the UK. The findings relate to the supervisory practices regarding

operational aspects of costs, fees and revenues as well as collateral management issues.

ESMA has updated its Q&A on temporary product intervention measures regarding the marketing, distribution or

sale of CFDs and binary options to retail clients under MiFIR.

ESMA has published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC). The

update relates to equity derivatives I, equity and equity-like instruments, as well as tick size band assessment.

EBA has published RTS defining the homogeneity of the underlying exposures in securitisation under the STS

Securitisation Regulation. EBA has also published RTS on risk retention for securitisation transactions.

RESOLUTION AND RECOVERY The Single Resolution Board (SRB) has adopted a preliminary decision following the valuation 3 report on the

resolution of the Spanish Popular Bank. According to the SRB’s assessment, it must not pay compensation to

former shareholders and creditors of the bank. The authority argues that normal insolvency proceedings would

have resulted in the same losses as the resolution under the supervision by the SRB and therefore, no one is

worse off (“no creditor worse off principle”). The affected shareholders and creditors have been invited to let know

whether they are interested to exercise their right to be heard before the SRB adopts its final decision.

EBA has published its first Report on the functioning of the so-called resolution colleges, set up to facilitate

coordination between the various authorities involved in the resolution of cross-border banking groups under the

BRRD (e.g. resolution authorities, supervisors, finance ministries, administrators of deposit guarantee schemes).

ANTI-MONEY LAUNDERING / EU CITIZENSHIP The Commissioner for Justice, Consumers and Gender Equality Ms. Věra Jourová has voiced concerns about the

growing number of passports and long-term visas granted by EU Member States in exchange for financial

advantages. She advocates the adoption of new EU anti-money laundering rules, as well as a more selective

screening of the individuals concerned. Ms. Jourová bases herself on a (non-public) study of the Directorate-

General for Justice and Consumers on golden visas and investment schemes for EU citizenship. The Parliament

adopted a Resolution on the topic in 2014. It remains to be seen whether the Commission’s renewed interest will

impact the flat-rate tax schemes for wealthy individuals in EU Member States and possibly certain Swiss cantons.

US SANCTIONS AGAINST IRAN In response to the renewed US sanctions against Iran, the European Commission has given effect to the EU

‘Blocking Statute’ on 7 August by adopting two Regulations (see links here and here). The Commission has further

granted a guarantee to the European Investment Bank (EIB) against losses under financing operations supporting

EU investment projects in Iran. The Commission has finally issued a Guidance Note. EU operators may not ask

the US authorities for an exemption from the US sanctions, unless they have been previously authorised to do so

by an EU authority. Further, EU operators are free to choose whether to start working, continue, or cease

business operations in Iran. Companies are able to cease their activities in Iran for genuine economic reasons.

However, a company terminating its business in order to comply with the relevant US sanctions against Iran on 7

August or after that day would (theoretically) be in breach of the EU Blocking Statute.

jsproge@ teptoe.com

SWISS-EU RELATIONS

The Commission’s negotiating team aims to overcome the current impasse in the negotiations with Switzerland by

October. According to the Commission Switzerland should accept the EU Directive on detached workers and

replace the current flanking measures by national implementing measures under the Directive, subject to review

by the future arbitral body and possibly the CJEU. While there are no concrete plans at the moment, there is a

general expectation that equivalence for Swiss stock exchanges could be extended fairly quickly once the issue of

the flanking measures has been resolved.

BREXIT

Theresa May announced that from now on she would take personal control of the Brexit negotiations.

According to the EU’s chief negotiator Michel Barnier, the EU and the UK are in agreement that future market

access in financial services should “be governed by autonomous decisions on both sides”. The parties also agree

that there should be “close regulatory cooperation, which will also have to respect the autonomy of both parties”.

During a hearing in the UK Parliament, top representatives of the UK financial services sector, namely Ms.

Catherine Guiness of the City of London Corporation and Mr. Huw Evans, Director-General of the Association of

British Insurers, expressed concerns about the reference to equivalence in the UK’s Government White Paper. In

Mr Evans’ view the Swiss example shows that equivalence is an ongoing negotiation process, where friction is

inevitable.

FINANCIAL SERVICES

There are increasing signs that the European Parliament is preparing the ground for a review of EU consumer and

investor protection rules, presumably to be followed up after the general Parliament election in May 2019.

Thus, the Chair of the Parliament’s ECON Committee Roberto Gualtieri has addressed several questions to the

Commission on the mis-selling of financial products. Mr Gualtieri would like to know how the Commission intends

to address cases of mis-selling, especially those related to breaches of EU law (e.g. MiFID II, IDD, UCITS, MCD,

CCD). Mr. Gualtieri is asking the Commission to come up with initiatives to enhance coherence in consumer and

investor protection throughout financial services legislation. The Commission has six weeks to provide an answer.

The Council is unwilling to discuss the Commission’s proposal for the introduction of European safe bonds

(ESBies) or sovereign bond-backed securities (SBBS) before the end of term of the current Parliament.

ESMA has updated the two Q&As on the application of the UCITS and AIFM Directives. Both Q&As contain new

sections on the intra-EU provision of investment services through branches.

ESMA has also updated the Q&A on practical questions regarding EMIR. The update relates to the identification

of counterparties to a derivative; the Legal Entity Identifier (LEI); and the reporting of derivatives to trade

repositories.

ESMA has published its reply to a letter from European Commissioner Mr. Valdis Dombrovskis on the issue of

share cancellation under the Money Market Funds (MMF) Regulation.

EBA has published its reply to claims by Caius Capital LLP against the ECB. Caius had argued that the ECB

should have disqualified the Common Equity Tier 1 (CET1) classification of Unicredit capital instruments in

connection with Convertible and Subordinated Hybrid Equity-Linked Securities (CASHES). The EBA found that

there was no clear evidence of a breach of EU law by the ECB and therefore, decided to close the matter.

In response to a call for advice from the Commission, EBA has published a report on European Secured Notes

(ESNs). EBA recommends that the Commission should investigate the case for a new distinct asset class for high-

quality project finance loans in the form of standardised EU infrastructure bonds.

ESMA has issued a follow-up report to the peer review of EU national competent authorities with regard to

compliance with MiFID suitability requirements.

ANTI-MONEY LAUNDERING

Malta's attorney general has fully cleared Maltese Prime Minister Joseph Muscat of any wrongdoing in the

Panama Papers case. The inquiry did not uncover any evidence of corruption or money laundering by Mr. Muscat

or his family members through Pilatus Bank accounts.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

16 July – 20 July 2018

SWISS-EU RELATIONS

Swiss and EU negotiators pursue their discussions until the end of this month. As expected, the agenda includes

the analysis of the EU Directives on detached workers. In addition the parties are discussing the surveillance

system for the enforcement of state aid control in Switzerland, which continues to be a thorny subject.

BREXIT

The European Commission has published a communication with the title ‘Preparing for the withdrawal of the UK

from the EU in March 2019’. The document is calling on stakeholders to be prepared for a ‘no-deal’ Brexit

scenario. The Commission is stressing the fact that a transition period will only be available if the Withdrawal

Agreement is agreed. Therefore, businesses need to prepare for all scenarios, including for one without a

transition period. On financial services, the Commission warns that after Brexit, access to the EU-27 market for

UK firms will be regulated by the EU’s existing third-country regimes, where applicable, and otherwise the national

legal frameworks of the respective Member States. There will be no Single Market access for UK-based

companies. The paper does not explicitly mention the issue of EU equivalence.

FINANCIAL SERVICES

The European Parliament’s ECON has published a joint draft report from Mr. Burkhard Balz and Ms. Pervenche

Berès on the proposed review of the European supervisory architecture (ESAs review) (link), accompanied by an

Opinion from the Budget Committee (link). Another joint report from Mr. Balz and Ms. Pervenche Berès concerns

macro-prudential oversight and the ESRB (link).

EBA has published its guidelines on fraud reporting under PSD2. Fraudulent transactions where the payer is the

fraudster are no longer within the scope of the Guidelines.

ESMA has issued regulatory technical standards (RTS) for the implementation of the Prospectus Regulation. The

RTS cover, inter alia, arrangements for the notification portal used for passporting prospectuses.

ESMA has published supplementary guidance on the application of the endorsement regime for non-EU credit

ratings under the Credit Rating Agencies Regulation (CRAR). The aim of the guidance is to ensure that third-

country credit ratings, which are endorsed for use by EU investors, meet requirements which are at least as

stringent as those set out in the CRAR. The measures will take effect on January 1, 2019.

ESMA has published its response to the European Commission’s consultation document on the fitness of the EU

framework for public reporting by companies. ESMA strongly disagrees with the introduction of the

possibility to modify the content of IFRS (‘carve-in’). In ESMA’s view, the EU should show leadership in

reaffirming its commitment to IFRS.

ESMA has updated its Q&A on the Benchmarks Regulation (BMR).

ESMA has issued first draft technical standards (TS) under the Securitisation Regulation (SR) concerning simple,

transparent and standardised (STS) securitisation.

DATA PROTECTION

The European Commission has successfully concluded talks with Japan on reciprocal adequacy decisions for

data flows under the General Data Protection Regulation (GDPR). Each side will now launch its relevant internal

procedures for the adoption of adequacy.

TAX

The Code of Conduct Group for business taxation has published a compilation of the guidance notes agreed by

the Group since its creation in March 1998. The EU’s Code of Conduct Group and the foreign listed jurisdictions

actively continue their discussions about the implementation of the commitments agreed last year and to be

finalized by year end.

ECONOMIC SANCTIONS AGAINST IRAN

The Council has endorsed the update of the ‘Blocking Regulation’ as proposed by the European Commission,

following the US withdrawal from the Iran nuclear deal. This endorsement allows for a swifter adoption of the

‘Blocking Regulation’ before the deadline of 6 August 2018. The Regulation is meant to protect EU businesses

against the extraterritorial application of US sanctions.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

9 July – 13 July 2018

SWISS-EU RELATIONS

The Swiss and EU chief negotiators have met in Brussels to discuss the road map for the institutional

negotiations. Discussions will continue during July, possibly August. Parties will formally reconvene mid-

September to define a base line, once the Federal Council has agreed on what the Swiss global position is, taking

into account the result of the August consultation on the specific question of flanking measure. The overall goal is

to agree on a joint declaration by October. There is a certain, although limited, level of optimism on both sides.

BREXIT

The UK Government has published its Brexit white paper confirming that the UK will formally ask the EU for a

post-Brexit association agreement. The European Parliament’s Brexit Steering Group welcomed the White Paper.

FINANCIAL SERVICES

As anticipated, the European Parliament’s ECON Committee has adopted a draft report from Rapporteur Brian

Hayes on the relationships between the EU and third-countries concerning financial services regulation and

supervision. The report advocates certain improvement of the EU’s equivalence system and a stronger

involvement for the Parliament and the Council in the decision-making procedure (link to press release). The

Parliament’s Plenary will debate on the report on 10 September 2018 with a vote on the day thereafter. The

Parliament will likely follow up on the suggestions in the report after the 2019 EU general elections.

ESMA has published an updated version of the Q&A on investor protection topics under MiFID II/MiFIR. One of

the updates relates to the provision of investment services and activities by non-EU firms at the exclusive initiative

of the client (“reverse solicitation”). ESMA provides examples of services that should not be considered as

belonging to the same category for the purpose of the reverse solicitation regime.

During a hearing at the ECON Committee, the Austrian Finance Minister Hartwig Löger declared that the Austrian

EU Presidency will focus on a number of priority dossiers in the financial services sector, including capital

requirements, EDIS, and an appropriate follow-up to the Commission’s FinTech Action Plan.

In response to the Commission’s proposal for a review of the European supervisory architecture (ESAs review),

Members of the European Parliament Mr. Burkhard Balz and Ms. Pervenche Berès have presented three joint

draft reports to the ECON Committee. According to EU sources, it seems unlikely that the EU institutions will

decide on the proposed ESAs review before the EU general elections in 2019.

The ECON Committee held a public hearing with the chair of the Supervisory Board of the Single Resolution

Board (SRB) Dr. Elke König. She reported among other things on the recently agreed backstop for the Single

Resolution Fund (link to briefing note).

EBA has issued a recommendation addressed to the Maltese Financial Intelligence Analysis Unit (FIAU) after

establishing it had breached EU law by failing in its obligations to supervise Pilatus Bank in relation to suspected

money laundering.

ESMA has published a consultation paper that concerns the exemption from the clearing obligation under EMIR

for intragroup derivative transactions with third country entities. The consultation is running until 30 August 2018.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

2 July – 6 July 2018

SWISS-EU RELATIONS The EU has taken note of the Federal Council’s statements of this week. The focus of attention is now placed on a

possible solution to the question of the flanking measures. Negotiations – “which remains difficult” according to the

Commission – will continue next week.

FREE MOVEMENT OF PERSONS On the day when Ignazio Cassis gave a press conference in Berne on the institutional framework agreement and

the accompanying measures, EU Member States reached a political agreement on a new approach for

unemployment benefits in Brussels. The Council for Employment, Social Policy, Health and Consumer Affairs

(EPSCO) broadly agreed on an amendment to the EU rules on the coordination of social security systems. If

adopted, the new rules mean that unemployment benefits will be paid by the country where the worker was last in

paid employment and not where he is resident. The Council and European Parliament still need to formally agree

on the proposal. The proposed amendment is earmarked as being of “relevance for the EEA and Switzerland”.

BREXIT The EU Summit Conclusions on Brexit express concern that no substantial progress has been achieved on

agreeing a backstop solution for Ireland/Northern Ireland and the territorial application of the Withdrawal

Agreement regarding Gibraltar. Intensified efforts are necessary to conclude the Withdrawal Agreement on time.

FINANCIAL SERVICES On 11 July, the European Parliament’s ECON Committee will vote on a draft report from Rapporteur Brian Hayes

on the relationships between the EU and third countries concerning financial services regulation and supervision.

According to recent working drafts, the Committee will call on the Commission to assess the benefits of

introducing an application process for non-EU countries wishing to obtain equivalence. Bilateral cooperation

agreements in the financial services sector may be considered in specific cases.

As from July 1, Austria assumes the presidency of the EU. According to the Austrian Presidency’s work

programme the priority dossiers in the financial services sector are, the completion of the Banking Union (more

specifically - EDIS) and further development of the Capital Markets Union (CMU).

The Council’s Working Party on Financial Services discussed the proposed review of the European supervisory

architecture (ESAs review). Prior to the meeting, the Council’s Legal Service had expressed doubts in a legal

opinion (not publically available) with regard to the delegation of certain powers to the ESAs. The main concerns

related to the rules on European Venture Capital Funds (EuVECA), European Social Entrepreneurship Funds

(EuSEF) as well as the EU Prospectus Regulation.

The ECB has published a report on banks’ recovery plans. The largest banks’ recovery plans are occasionally too

big, complex, or information is scattered. This may affect the implementation of recovery plans in a crisis situation.

The ECB has published a draft Regulation on the definition of the materiality threshold for credit obligations past

due. The materiality threshold will increase the comparability of banks’ defaulted exposures. ECB is asking

industry to provide its feedback on this draft Regulation by 17 August 2018.

ESMA has issued clarifications on the clearing obligation for pension scheme arrangements (PSAs). The

clarifications are meant to prevent disruption to certain PSAs who may face challenges clearing their OTC

derivative contracts by 17 August 2018, when the current exemption from the EMIR clearing obligation expires.

EBA has published two reports: (1) a thematic report on the impact of FinTech on incumbent credit institutions'

business models and (2) a thematic report on the prudential risks and opportunities arising for institutions from

FinTech. The second report is focussing, inter alia, on potential prudential risks and opportunities that may arise

from outsourcing core banking/payment systems to the public cloud.

The Parliament’s ECON Committee has published a study on cryptocurrencies and blockchain.

TAX The Council’s Code of Conduct Group will have a meeting on 10 July. The Group will discuss, inter alia, the

implementation of the commitments submitted by the non-EU countries concerned under the ‘black’ and ‘grey’ lists

of non-cooperative tax jurisdictions.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

25 June – 29 June 2018

BREXIT

This week’s EU Summit in Brussels was still on-going when this update was written. The Summit conclusions are

expected to be published by Friday early night. The main unsolved questions concern the Irish border issue and

more importantly, the framework for the future EU-UK relationship. There is a concern that the negotiations are

only progressing slowly, with the risk that negotiations could fail (‘hard Brexit’).

The EBA has published an opinion on the risks posed by the lack of preparation by financial institutions for the

departure of the UK from the EU. The EBA asks the competent authorities in the EU27 countries to ensure that

financial institutions factor in the risk of a ‘hard Brexit’. The financial institutions should also inform those

customers that could potentially be affect in order ‘to minimise any potential disruption arising from customer

confusion’. UK-domiciled banks should have applied for an EU license by this Friday 29 June 2018.

Her Majesty's (HM) Treasury has published guidance on ‘financial services legislation under the EU Withdrawal

Act’. According to the publication, the UK government is confident that there will be a transition period after March

2019. Nevertheless, the government will ensure that a workable legal regime will be in operation whatever the

outcome of negotiations. Meanwhile, the EU Withdrawal Bill received Royal Assent from the Queen.

FINANCIAL SERVICES

The Council has published a revised compromise proposal for an amendment to the EMIR supervisory regime for

EU and third-country CCPs.

The Council has adopted its position on the legislative proposal concerning certain charges on cross-border

payments and currency conversion. The negotiations with the European Parliament and the Commission will

proceed as soon as the European Parliament has agreed its position.

EBA has launched a public consultation on its draft guidelines on outsourcing. The draft states that ‘with regard to

outsourcing to services providers located in third countries, financial institutions must take particular care that

compliance with EU legislations and regulatory requirements (…) are ensured and that the competent authority is

able to effectively supervise financial institutions, including, in particular the critical or important functions

outsourced to service providers’. ‘Outsourcing to service providers located in third countries must be subject to

additional safeguards that ensure that they do not lead to an undue increase of risks or impair the ability of

competent authorities to effectively supervise institutions and payment institutions.’ The consultation runs until 24

September 2018.

The European Parliament's ECON Committee has published its reports on the Commission's proposed revisions

to the Capital Requirements Regulation (CRR) and the CRD IV Directive.

ESMA has published an opinion on the assessment by CCPs of liquidity risks under EMIR.

The EBA has updated its guidance on supervisory data. The guidelines now includes updated formulas and

guidance in light of IFRS 9 changes introduced with the EBA reporting framework.

EBA has added the EU Payment Services Directive 2 (PSD2) to its online Interactive Single Rulebook and Q&A

tools. All final Technical Standards and Guidelines associated with the PSD2 are now included in the Interactive

Single Rulebook.

The Advocate-General to the CJEU Mr. Campos Sánchez-Bordona has issued an opinion on the review of ECB

measures and of preparatory measures adopted in procedures for the authorisation of the acquisition of qualified

shareholdings in banks. The opinion concerns a request for preliminary ruling in the case of Mr. Silvio Berlusconi

vs. Banca d’Italia. The CJEU will take the Advocate-General’s opinion into account before adopting its judgment.

However, the Court is not bound by the opinion.

TAX

The General Secretariat of the Council has sent to the national EU delegations a compilation of the guidance

notes agreed by the Code of Conduct Group (business taxation) since its creation in March 1998.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

18 June – 22 June 2018

SWISS-EU RELATIONS

EU negotiators have noted from recent encounters with their Swiss counterparts that the current Swiss negotiation

mandate does not seem to allow negotiations on the Swiss accompanying measures. They are waiting to see

whether this issue will be resolved next week when the Federal Council will likely assess the progress in the

Swiss-EU institutional negotiations and decide on next steps. Federal Councillor Ignazio Cassis will then meet

Johannes Hahn, European Commissioner for European Neighbourhood Policy and Enlargement Negotiations in

July. From the EU’s viewpoint, Swiss concessions on the accompanying measures, the European citizenship and

furthermore the coordination of national social security regulations are required to facilitate a breakthrough.

There are currently no indications that the Commission would be ready to consider an unlimited extension of the

EU equivalence for Swiss stock exchanges. Rather, the equivalence would be renewed for a limited time period.

BREXIT

The EU and the UK have published a Joint Statement, outlining further progress in Brexit negotiations. Serious

divergences on the Ireland/Northern Ireland protocol remain. Mr. Michel Barnier will present the state of play at the

upcoming EU Summit (28–29 June).

FINANCIAL SERVICES

The European Parliament’s Committee for Economic and Monetary Affairs (ECON) held a debate and voted on

the legislative proposal on the loss-absorbing and recapitalisation capacity of credit institutions and investment

firms.

The ECON Committee has furthermore debated on the legislative proposals regarding the prudential requirements

and the supervision for investment firms. During the debate it was suggested that EU branches of non-EU

investment firms should be supervised by ESMA. The Council’s Working Party on Financial Services will discuss

the legislative package this Monday 25 June.

The Council EU has reached a common position on the proposed introduction of a pan-European pension product

(PEPP). It has also adopted a common position on the proposed new measures to facilitate the cross-border

distribution of collective investment funds. Negotiations with the European Parliament can proceed as soon as the

Parliament has agreed its stance on these two issues.

EBA has launched a consultation on draft Regulatory Technical Standards (RTS) specifying the conditions for

calculating capital requirements of securitised exposures (KIRB). The consultation runs until 19 September 2018.

EBA has published its first two binding mediation decisions between solution authorities, in this case between the

Single Resolution Board (SRB) and the National Bank of Romania. The decisions were issued following a request

to assist in settling a dispute concerning the resolution planning for two banking groups.

The EBA and ESMA. have each published their annual reports.

ESMA has announced that the temporary period allowing for a smooth introduction of the use of Legal Identity

Identifiers (LEIs) will not be further extended and therefore cease in July 2018. Currently ESMA and the national

competent authorities are coordinating the development of a common supervisory action plan focused on

compliance with the LEI reporting requirements under MiFIR provisions.

ECB has updated its manual for the asset quality review of banks. Now the manual incorporates new accounting

standard (IFRS 9) and reflects the increased importance of business models focused on investment services.

The Court of Justice of the EU has ruled that information held be financial supervisory authorities is presumed to

be free of business secrets after five years, “unless, exceptionally,” it contains essential details of a firm’s

commercial position.

ANTI-MONEY LAUNDERING

The think tank of the European Parliament has published an analysis of recent money-laundering cases in Latvia

and Malta from an EU banking supervisory perspective. The think tank recommends the creation of a European

authority overseeing money laundering cases across the EU. This idea was endorsed by Ms. Danièle Nouy, the

Chair of the Supervisory Board of the ECB, at a hearing of the Parliament’s ECON Committee this week.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

11 June – 15 June 2018

SWISS-EU RELATIONS

The Swiss and EU negotiation teams actively continue their discussions, in a constructive mode, notwithstanding

last week’s declarations of the Federal Council regarding a possible adoption of rebalancing measures, should

the EU decide that an equivalence decision for the Swiss stock exchange will not materialize in 2019.

The negotiators intend to reach a preliminary agreement by early fall, subsequent to which Switzerland and the

EU might issue a joint statement which could announce that a global understanding has been reached.

BREXIT

A majority of the British House of Commons supported Prime Theresa May by rejecting a number of proposed

amendments to the UK Withdrawal Bill. The House of Commons decided among other things against a proposal

that the UK should remain in the European Economic Area (EEA) after Brexit.

FINANCIAL SERVICES

The Bulgarian Presidency of the Council has published a progress report on the negotiations in the Council

concerning the proposed European Deposit Insurance Scheme (EDIS) and on the completion of the Banking

Union.

The Bulgarian EU Presidency has also published a compromise proposal for a Regulation on a Pan-European

Personal Pension Product (PEPP). The compromise suggests that providers of EU-wide personal pensions

would not include past-performance metrics in marketing materials.

EBA has publishes an opinion on the implementation of the regulatory technical standards (RTS) on strong

customer authentication (SCA) and common and secure communication (CSC) within the context of the Second

Payment Services Directive (PSD 2).

EBA has further published a consultation paper on draft guidelines concerning the above mentioned RTS. The

deadline for the submission of comments is 13 August 2018.

ESMA has issued its first annual report on supervisory measures carried out and penalties imposed by national

competent authorities under the European Market Infrastructure Regulation (EMIR). According to ESMA, the

report should help the EU institutions to gradually identify best practices and potential areas that could benefit

from a higher level of harmonisation in the EU.

The Economic and Financial Affairs Committee (ECON) of the European Parliament has published a study on the

compensation of investors in Belgium. The paper, which is part of a series of studies, discusses three cases that

concerned the mis-selling of investment products to retail clients in Belgium, namely the Citibank, Dexia and

Fortis cases. The report then draws a number of conclusions on the appropriate regulatory framework for investor

compensation.

TAX

The Code of Conduct Group of the Council has published a report on its past activities, including a proposal of a

new multiannual work programme as well as a summary able on the state of play in relation to the 92 jurisdictions

that were screened in 2017, Switzerland being one of those jurisdictions.

Meanwhile the Council has published draft Council conclusions on the work performed by the Code of Conduct

Group. The conclusions will be formally adopted at the forthcoming Summit of the EU Heads of State and

Government on 28 and 29 June 2018.

DATA PROTECTION

The Civil Liberties Committee (LIBE) of the European Parliament has voted on a resolution requesting the

Commission to suspend the EU-US Privacy Shield by 1 September 2018. The Privacy Shield allows the transfer

of personal data from the EU to the US. In LIBE’s opinion, the Privacy Shield fails to provide sufficient protection

for EU citizens as set in the General Data Protection Regulation (GDPR). The resolution will be debated and

voted during the Parliament’s plenary session in July.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

4 June – 8 June 2018

SWISS-EU RELATIONS

The heads of the two negotiation teams met in Brussels, Thursday, June 7 in order to assess the current state of

the negotiations and consider the next steps. The outcome of the meeting has been described as constructive and

forward-looking. The creation of an arbitration tribunal is essentially agreed. As to the Swiss red lines (flanking

measures and state aid), the teams will continue searching for acceptable solutions. The original calendar remains

the same. Assuming that, early July, the political authorities (Swiss federal Council and EU Member States) agree

on a set of acceptable solutions, as negotiated by the two teams, the negotiation will continue in the fall with a

proposed completion date by year-end.

Regarding the stock exchange equivalence question, the decision of the Swiss Federal Council to consider

possible rebalancing measures - announced an hour before the sending of this alert - has caused the Commission

to rethink its positioning in the negotiations. Consultations between the parties will be organised next week.

The Council of the EU has published the Joint Statement of Switzerland and the EU Member States, originally

concluded on October 14, 2014, concerning the abolition of allegedly harmful corporate tax regimes.

BREXIT

The ESMA Chair Steven Maijoor believes that the EU should be granted additional supervisory powers to

oversee UK financial infrastructures. Therefore, he will support the EMIR 2.2. proposal, which will enable the

EU’s oversight of UK clearing houses, or relocation of those clearing houses if they pose systemic risk to the EU.

According to Maijoor, the concept should be expanded to other areas, including trading venues, credit rating

agencies, and securities depositories, he said. In his view, the EU cannot simply rely on equivalence, given the

importance of the UK financial services sector for the EU market.

The Think Tank of the European Parliament has published an article on ‘”Regulation of OTC derivatives in the

EU”, explaining the Parliament’s position on the above mentioned EMIR 2.2. proposal. The vote in the Parliament

will take place during the plenary session in June.

FINANCIAL SERVICES

The Single Resolution Board (SRB) and the European Central Bank (ECB) have signed a memorandum of

understanding in respect of cooperation and information exchange. The stated aim is to ensure efficient, effective

and timely cooperation between them in the performance of their respective resolution and supervisory tasks.

TAX

The Council of the EU confirmed the agreement reached between the Bulgarian presidency of the Council and the

Parliament on the 5th Anti-money laundering Directive. The new Directive will now undergo linguistic revision

before it will finally be formally adopted by the Council and Parliament. Thereafter, Member States will have

approximately 24 months to implement the new rules into the national law.

A consolidated version of the 'EU list of non-cooperative jurisdictions for tax purposes' has been published. The

following jurisdictions are now removed from the list: Bahrain, Barbados, Grenada, Republic of Korea, Macao

SAR, Marshall Island, Mongolia, Panama, Saint Lucia, Tunisia and the United Arab Emirates.

ECONOMIC SANCTIONS AGAINST IRAN

As anticipated, the Commission has adopted a delegated act to update the so called “Blocking Regulation”, in

response to the renewed US sanctions against Iran. The “Blocking Regulation” is meant to protect EU businesses

against the extraterritorial application of legislation adopted by a third country such as the US. It forbids

EU persons from complying with extraterritorial measures, and nullifies the effect in the EU of any foreign court

judgment based on them. The Regulation also provides, among other things, that whoever has suffered damage

as a result of US sanctions, may be entitled to recover damages, including legal costs. It is unclear whether this

could also be invoked by EU clients of Swiss banks in case of a dispute over a US sanctions-related measure of

the bank. The Council and the Parliament would in principle be able to object to the delegated act within two

months. The debate in the Parliament’s International Trade (INTA) Committee is scheduled for June 20-21, 2018.

The Commission has further revised the EIB's External Lending Mandate. The modification would make Iran eligible for EIB investment activities. However, it is ultimately up to the EIB's governing bodies to decide whether they wish to undertake financing activities. The EIB has already indicated that it is not willing to run the risk.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

28 May – 1 June 2018

SWISS-EU RELATIONS

The Swiss and the EU negotiators will meet next week, in Brussels to assess the progress achieved since

February. Both sides explained that a consensus has now been reached on the structure and the functioning

of the arbitration tribunal. As to the outstanding issues (scope of the institutional agreement, flanking

measures, state aid) progress is slow and the substantive issues many. The EU negotiators represented by

members of the Cabinet of the President of the European Commission, together with the foreign affairs

services (EEAS) have made known that Switzerland will have to agree to concessions if the negotiation has

to be closed by year-end. Said concessions would principally relate to an alignment of the Swiss flanking

measures with EU law and the creation of a system which would permit EU state aid rules to apply in

Switzerland with respect to certain internal market aspects.

FINANCIAL SERVICES

ESMA has updated its Q&A on investor protection and intermediaries under MiFID II and MiFIR. In the

updated version, ESMA takes position on various issues, including ‘reverse solicitation’ and the ‘opting-up’ of

elective professional clients.

The European Parliament’s ECON Committee has presented a draft parliamentary resolution on the

proposed legislative changes concerning the procedures and authorities involved for the authorisation of

CCPs and requirements for the recognition of third-country CCPs.

According to European Central Bank’s (ECB) board member Yves Mersch, the ECB needs new monetary

policy tools if it is to supervise firms that clear financial transactions denominated in euros.

In a joint statement EBA and ESMA encourage authorities to take account of the special position of retail

debt holders when overseeing the resolution of financial institutions under the EU Bank Recovery and

Resolution Directive.

ESMA has published a report on the outcome of a consultation on MiFID II suitability requirements. The

report discusses the criteria according to which investments firms assess whether personal

recommendations to their clients or investment decisions on behalf of their clients are suitable.

The European Parliament’s think-tank has published a briefing on the arguments for a further harmonisation

of national insolvency rules for failed financial institutions and a briefing that provides an overview of the

various on-going Banking Union initiatives, including EDIS.

ESMA has published guidelines on cooperation arrangements and information exchange between EU/EFTA

national competent authorities and between competent authorities and ESMA.

ESMA has issued final guidelines on anti-procyclicality margin measures for CCPs under EMIR.

ESMA has updated its Q&A regarding transparency and market structures issued under MiFID II and MiFIR.

ESMA has updated its Q&A on the Short-Selling Regulation (SSR) where it has clarified the requirements for

‘easy-to-borrow and purchase’ lists.

BUSINESS TAXATION

The Code of Conduct Group for Business Taxation has discussed the state of the implementation of

commitments undertaken by the so-called committed jurisdictions – Switzerland being one of them – with an

interim report planned for end of July, and a second one by the end of the year.

DATA PROTECTION

Willem Debeuckelaere, the deputy chair of the European Data Protection Board (EDPB), has declared that

there will be “no grace period” for companies failing to enforce the GDPR.

CONTROL OF FOREIGN DIRECT INVESTMENT

The Committee on International Trade of the European Parliament took a favourable view on the proposed

Regulation on Establishing a Mechanism to Screen Foreign Direct Investment to the EU economies (link).

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

21 May – 25 May 2018

SWISS-EU RELATIONS

The negotiations on a Swiss-EU electricity agreement have resumed, while negotiations on the institutional

framework agreement continue.

BREXIT

Speaking at the IFF spring meeting in Brussels, the Director-General of DG FISMA Olivier Guersent warned that

banks should not underestimate the Brexit risk. For as long as the Withdrawal Agreement is not ratified, banks are

well-advised to factor in a possible cliff edge (hard Brexit) in March 2019.

FINANCIAL SERVICES

European Commissioners Dombrovskis and Katainen have announced new legislative proposals to strengthen the

Capital Markets Union (CMU) and the Banking Union (link to speech). The Commission proposes to improve

access for Small and Medium-Sized Enterprises (SMEs) to SME Growth Markets, which is a category of

multilateral trading venues under MiFID II. To this end, the Commission has presented amendments to the EU

Market Abuse Regulation (MAR), the Prospectus Regulation, as well as amendments to level 2 measures under

MiFID II. The Commission proposes a Regulation on Sovereign Bond-Backed Securities (SBBS), also known as

European safe bonds (ESBies). Interested stakeholders are invited to comment by 19 July 2018.

The Commission has announced new measures for the promotion of sustainable finance. The proposed

Regulation on the Establishment of a Framework to Facilitate Sustainable Investment will establish the conditions

and the framework to create a unified 'taxonomy' on what can be considered an environmentally sustainable

economic activity. The Regulation on Disclosures Relating to Sustainable Investments and Sustainability Risks

concerns the integration by institutional investors and asset managers of environmental, social and governance

(ESG) factors in their risk processes. Finally, an amendment to the Benchmark Regulation will create a new

category of low-carbon and positive carbon impact benchmarks (link to the proposals).

The European Surveillance Authorities (ESAs) have published their joint 2017 Annual Report. According to thee

report stresses that the fight against money laundering and terrorist financing has been a key priority.

EBA has launched two consultations on draft regulatory technical standards (RTS), specifying the nature, severity

and duration of an economic downturn, and on guidelines related to the estimation of loss given default (LGD). The consultations are open until 22 June 2018.

The European Parliament’s (EP) ECON Committee has adopted a report on the proposed Regulation amending

the EMIR and the ESMA Regulation with regard to the authorisation of central counterparties (CCPs) and the

recognition of third-country CCPs (link to press release).

The Economic and Financial Affairs Council (ECOFIN) agreed its stance on the risk reduction package for credit

institutions. The Council will start negotiations with the European Parliament, when the latter will formulate its

position on this legislative proposal.

EBA has released updated data on Deposit Guarantee Schemes (DGS) across the EU. The data from 2017 on

available financial means and covered deposits shows that 32 out of a total of 43 DGS in EU Member States have

increased their funds since 31 December 2016.

TAX AND DATA PROTECTION

After issuing country-specific recommendations on the economic policies of the 28 EU Member States, European

Commissioner Pierre Moscovici has again denounced certain Member States for allegedly failing to combat tax

avoidance. He generally referred to seven EU Member States, which is understood to mean Belgium, Cyprus,

Hungary, Ireland, Luxembourg, Malta, and the Netherlands.

The Council removed the Bahamas and Saint Kitts and Nevis from the EU's list of non-cooperative tax

jurisdictions. The Council adopted conclusions on the EU standard provision on good governance in tax matters

for agreements with third countries. The Council adopted a draft directive aimed at boosting transparency to

prevent aggressive cross-border tax planning. It has to be transposed by Member States until 31 December 2019.

The General Data Protection Regulation (GDPR) is in effect as from 25 May. Eight EU Member States (Belgium,

Bulgaria, Cyprus, Czech Republic, Greece, Hungary, Lithuania and Slovenia) failed to implement GDPR on time.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

14 May – 18 May 2018

SWISS-EU RELATIONS

The Swiss and EU negotiators are accelerating the pace of their discussions, in a positive climate. The goal is still

to reach a consensus on the institutional aspects before the summer recess. Both sides confirm that the

establishment and the functioning of the proposed arbitration court is nearly completed. As to the other aspects of

the negotiations (free circulation and flanking measures, social security, EU citizenship and state aid – essentially

the Swiss “red lines”), EU officials confirm that those dossiers have not yet found a satisfactory resolution. There is

a growing concern that the negotiations will not be completed by year-end, as scheduled. The two chief

negotiators will meet in Brussels at the beginning of June to take stock and decide on next steps. The question of

the Swiss stock equivalence is still unresolved and will have to await the EU’s assessment of progress made in

devising a new framework agreement, as per the December 2017 Commission decision.

BREXIT

The European Commission has published a slide on the EU-UK Possible Framework for the Future Partnership

Discussions. EU-UK relations with regard to financial services regulation and data protection will be based on “EU

autonomous measures”, that is equivalence for financial services and adequacy for data protection.

Earlier this week, Vice-President of the European Commission Valdis Dombrovskis stated at a breakfast meeting

in Brussels that the current third-country equivalence regime will not be revised.

The ECB has published an article on the Brexit impact of a potential transition period. The ECB reminds banks

that despite the progress made in the political negotiations, the transition period is not yet finally agreed. If the

parties fail to agree on the Withdrawal Agreement, there will be no transition. Therefore, the ECB expects banks to

continue preparing for all possible contingencies. For banks that are planning to relocate activities to the euro area

the ECB and national supervisors expect to receive their authorisation applications at the very latest by the end of

the second quarter of 2018. Banks will benefit from a “build up period” to adapt to the changes caused by Brexit.

The UK Government is planning to publish a White paper setting out its Brexit position which will "allow the UK to

go and actually negotiate". It is expected that this publication will include detailed explanations of the UK’s

government position and will cover many subjects, including financial services. The publication should be

expected in the first half of June, before the EU Summit.

FINANCIAL SERVICES

The discussion in the Council on the implementation of the so-called risk-reduction package progress slowly.

They currently focus on the Fundamental Review of the Trading Book (FRTB), the treatment of cross-border

activities within the EU Banking Union for the purposes of calculating the score of Globally Systematically

Important Institutions (G-SIIs), exemptions from capital requirements, and MREL.

The Bulgarian EU Presidency has issued a compromise proposal on the pan-European Pension Product (PEPP).

The ECB has published two articles entitled “What happens when a bank is failing or likely to fail?”and “IFRS 9:

credit institutions’ progress with implementation”.

ANTI-MONEY LAUNDERING

The Council has adopted the Fifth EU Anti-Money Laundering Directive, after the Parliament had given its consent

earlier. Meanwhile, European Commissioners Valdis Dombrovskis, Frans Timmermans, and Věra Jourová sent a

joint letter to the ECB and the European Supervisory Authorities, calling for increased coordination at EU level to

curb money laundering, following a string of money-laundering scandals in eurozone countries such as Latvia,

Estonia, and Malta. The letter acknowledges a need to integrate anti-money laundering considerations in

prudential supervision, both in terms of licensing of banks and assessing business models.

ECONOMIC SANCTIONS - IRAN

Following the EU summit in Sofia, the European Commission has launched the process to activate the Blocking

Statute. The Statute will forbid EU companies from complying with US sanctions against Iran. This decision will

also have consequences for Swiss banks operating in the EU. Swiss court judgments or administrative decisions

giving effect, directly or indirectly, to US sanctions will not be recognised.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

23 April – 27 April 2018

SWISS-EU RELATIONS

Mr. Johan Schneider-Ammann had talks with European Trade Commissioner Mrs. Cecilia Malmström in Brussels.

The issue of stock exchange access to the single market was raised. Mr. Schneider-Ammann insisted that time-

limited recognition of equivalence for Swiss stock exchanges constituted discrimination. Switzerland wishes to be

granted unlimited recognition of equivalence by the middle of this year.

BREXIT

The Vice-President of the European Commission Valdis Dombrovskis said at the City Week in London that

equivalence has proven to be a pragmatic solution that works in many different circumstances. It could work for

the UK after Brexit as well. In his response, the Head of the UK Financial Conduct Authority (FCA) Mr. Andrew

Bailey said that the current EU equivalence regime does not best suit any of the parties. In his opinion, mutual

recognition would be a better solution.

Mr. Michel Barnier declared at the Eurofi High-level Seminar that there is no intention of discriminating against the

UK after Brexit. The equivalence regime will operate in a more effective manner if the UK decides not to diverge

from the EU’s financial regulatory framework. The proposed 21-month transition period will enable the EU to

consider the adoption of equivalence decisions for the UK.

FINANCIAL SERVICES

The European Parliament’s Think Tank has published a briefing on third country equivalence in EU banking

and financial regulation. It has also published a briefing on cross-border distribution of investment funds.

This publication presents the rationale for the existing legislation on UCITS and AIFs.

The Parliament’s ECON committee has voted in favour of EBA relocation from London to Paris.

Meanwhile, EBA has launched a public consultation on its draft guidelines on simple and standardised

(STS) securities. The consultation is open until 20 July 2018.

The Commission has published a study on the distribution systems of retail investment products. The study

finds that consumers have access to a large and diverse range of products, but they face challenges in collecting

and comparing information. The costs for product vary considerably within the EU. Investors seek advice mainly

from non-independent advisors. The potential for new FinTech distribution models needs to be monitored. Recent

EU legislation, including MIFID II, PRIIPS and the IDD should normally contribute to improving the situation.

The Bulgarian EU Presidency has presented a compromise proposal for the proposed Regulation on a Pan-

European Personal Pension Product (PEPP). If the compromise is accepted, Council will be ready to start

negotiations with the European Parliament.

TAX

The Bulgarian EU Presidency has published a presidency note on the Directive on a Common Corporate Tax

Base (CCTB). The note evaluates the likely impact of the proposed Directive on national tax revenues.

The Council has published a consolidated overview of the commitments entered by non-EU countries to

implement tax good governance principles. Another report proposes the de-listing of Bahrain, Marshall Islands

and Saint Lucia from the “black list” of non-cooperative tax jurisdictions.

ANTI-MONEY LAUNDERING

The EP has published an in-depth analysis of recent cases of money laundering from the EU banking

supervision perspective. It discusses money laundering cases in Latvian, Estonian and Maltese banks and

proposes indicators that could point to money laundering problems.

WHISTLEBLOWER PROTECTION

The Commission has presented a draft Directive to strengthen whistleblower protection across the EU. All

companies with more than 50 employees or with an annual turnover of over €10 million will have to set up a

procedure for processing whistleblowers' reports. Whistleblowers will be granted protection when reporting

breaches of EU rules in relation to anti-money laundering, measures against the financing of terrorism, consumer

protection, protection of privacy and personal data, security of network and information systems, etc.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

16 April – 20 April 2018

SWISS-EU RELATIONS

European Commission Vice-President Valdis Dombrovskis denied that the Commission had applied different

standards when limiting the equivalence for Swiss stock exchanges to one year. Moscovici responded to a

written question from the German Member of the European Parliament Jörg Meuthen. The latter argued that the

discrimination of Swiss stock exchanges harmed German investment interests because the stock exchange in

Stuttgart had acquired its counterpart in Berne in December 2017. He also pointed out that German banks had

been active on the Berne Stock Exchange as market makers for trading in Japanese financial products. He further

raised the question whether the handling of the Swiss equivalence decision by the Commission was contrary to

the assurances given by the EU under GATS with regard to securities trading licenses.

FINANCIAL SERVICES

DG FISMA has prepared a Commission staff working document on the movement of capital and the

freedom of payments including Annexes. The Document argues that the proposal for a new EU legal framework

on investment screening is an important initiative that would improve transparency and cooperation within the EU

on screening certain investments from non-EU countries on grounds of security and public order.

In its draft report on the proposed Regulation on the prudential requirements of investment firms, the ECON

Committee of the European Parliament criticizes that the proposal does not sufficiently address the issue of EU

equivalence. The report argues in favour of a more robust and adapted equivalence regime, avoiding that EU

banks be potentially placed in a less favourable position than third country investment firms. The draft report

insists that the European Parliament must have a say on the granting and withdrawal of equivalence.

In a response to two European Parliamentarian questions Commission Vice-President Dombrovsksis voiced

concerns about the risks posed by virtual currency market places with regard to price volatility, governance,

transparency and security. The Commission will continue to monitor virtual currency markets and initial coin

offerings, together with the European Supervisory Authorities and the ECB, and decide whether further EU action

is required, in addition to the AML measures that have already been adopted.

ANTI-MONEY LAUNDERING

The European Parliament has given its approval to the 5th

Anti-Money Laundering Directive. The Directive is

the result of a Commission proposal dating from July 2016. A factsheet summarising the main changes introduced

by the Directive is available here.

TAX

In a response to a European Parliamentary question, European Commissioner Moscovici explained that those

non-EU states which had been moved from the so-called “black” to the “grey” list of non-cooperative tax

jurisdictions had been asked for their agreement to publish their commitment letters. The purpose is to clarify

what type of commitment each jurisdiction has made and enhance public scrutiny.

CYBER SECURITY

The Council has adopted conclusions on malicious cyber activities It recognizes that the interconnected and

complex nature of cyberspace requires joint efforts by governments, private sector, civil society, technical

community, users and academia to address the challenges faced and calls on these stakeholders to recognize

and take their specific responsibilities to maintain an open, free, secure and stable cyberspace.

SANCTIONS

The Council has extended by one year the economic sanctions responding to serious human rights violation

in Iran. Meanwhile the Foreign Ministers of the EU Member States have confirmed their full unity for the

continuing implementation of the Iran nuclear deal (JCPOA). This entails support for the work being undertaken in

particular by France, Germany, and the UK with the US administration to address some of the concerns

expressed by President Trump.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

9 April – 13 April 2018

SWISS-EU RELATIONS

The European Parliament’s ECON Committee has published the draft report on the EU’s relationship with third

countries concerning financial services regulation and supervision. The document notes, among other things,

that the Commission’s decision to grant equivalence for the Swiss stock exchanges for only one year, “was

primarily political, and used to gain leverage in a separate policy matter”. However, observers in Brussels suspect

that the Parliament is mainly promoting its own agenda to gain (political) influence on the equivalence process.

BREXIT

The EU’s Chief Brexit Negotiator Michel Barnier has warned that the most difficult part in Brexit negotiation is still to

come. There needs to be a workable solution for the Irish border in order for the Withdrawal Agreement to go ahead.

The EU 27 want a clear statement on future relations with the UK.

Meanwhile, the Joint Committee of the European Supervisory Authorities (ESAs) has warned that the securities,

banking and insurance sectors in the EU face multiple risks because of several factors, including uncertainties around

the terms of Brexit.

The UK’s Financial Conduct Authority (FCA) has published its annual Business Plan. The FCA will mainly focus

on the withdrawal process from the EU. The Confederation of British Industry CBI said that the opportunities for

business afforded by future regulatory freedom of the UK were limited and that the majority of sectors want to stay

close to current EU rules.

FINANCIAL SERVICES

The ECB has published a paper on the potential impact and appropriateness of several features of EDIS. The main

findings are that a fully-funded Deposit Insurance Fund (DIF) would be sufficient to cover payouts even in a severe

banking crisis. Risk-based contributions can and should internalise specificities of banks and banking systems.

Smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their

balance sheet. There should be no unwarranted cross-subsidisation in the sense of some banking systems

systematically contributing less than they would benefit from the DIF.

ESMA has recommended that the Commission should provide guidance on the definition of commodity derivative

trading activities that are ancillary to the main business of investment firms within the meaning of MiFID II.

The ECB has launched a public consultation on cyber resilience oversight expectations. Interested parties are

invited to submit their comments by 5 June 2018.

ESMA has published its latest report on Trends, Risks and Vulnerabilities (TRV), which shows that the EU market

for exchange-traded derivatives is worth approximately € 200tn, with an average daily turnover of € 1.3tn.

EBA has published a report on benchmarking of remuneration practices in EU banks for the financial years 2015

and 2016. It notes that the lower number of high earners was mainly driven by changes in the exchange rate, which

led to a reduction of staff income paid in £ when expressed in €.

The ECB has published a first opinion of the proposed reform of the European Supervisory Authorities (ESAs

review). The EBC is not convinced that EBA should play a lead role in the continuous monitoring of equivalence

conditions for non-EU jurisdictions.

DATA PROTECTION

ESMA has taken position on the issue of data transfers with non-EU financial supervisory authorities in a

response to a consultation on the interpretation of Article 49 of the General Data Protection Regulation (GDPR). Not

surprisingly, ESMA argues in favour of a wide interpretation of the public interest derogation in order to facilitate data

transfers between financial supervisory authorities.

CONSUMER PROTECTION

As part of the “new deal for consumers”, the Commission has proposed a new Directive on representative actions

for the protection of the collective interests of consumers.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

30 March – 6 April 2018

SWISS-EU RELATIONS

According to several EU officials, there is noticeable progress in the Swiss-UE dialogue. The negotiation climate is

altogether positive and the negotiation style is open and direct. The foundation of the arbitration mechanisms has

been agreed. Moreover, the delicate issue of the Swiss “red lines” including flanking measures has been addressed

and the two sides might be able to resolve the outstanding questions. In terms of calendar, the EU considers that a

preliminary base agreement could be reached in September. However, several points still await a solution e.g. state

aid (in particular the creation of a surveillance authority) and the number of sectoral agreements to be included in the

future institutional agreement. Assuming the trend continues, one could expect that the EU would note that there is

sufficient progress to confirm that the December 2017 equivalence condition regarding the Swiss stock exchange

decision has been fulfilled. This does not however mean that, depending on the facts, i.e the type of progress in the

institutional dossier, the new Commission decision on full equivalence should automatically be unconditional.

BREXIT

The UK Competition and Markets Authority will take on the supervision of state aid discipline during the transition

period, the UK government said in a letter. Longer-term decisions on future state aid control in the UK are said to be

the subject of discussions with the EU. The EU-UK negotiations on state aid control will likely spill over onto the

Swiss-EU institutional negotiations where state aid control is also an issue.

The House of Commons Brexit Committee has issued a report, outlining 15 “key tests” that a Brexit deal will need to

meet. The tests include unimpeded ability for UK providers of financial and broadcasting services to sell into EU

markets as at present; tariff-free trade; and free flow of data. Should the final deal not meet these criteria, an EFTA or

EEA membership may need to be considered. The Committee notes “countries such as Switzerland and Norway will

examine closely any agreement between the UK and the EU to see if it contains better terms than their current

arrangements. This, in itself, may limit the EU’s room for manoeuvre in terms of what it is prepared to offer the UK.”

Meanwhile, Mr. Guy Verhofstadt (the European Parliament's representative on Brexit matters) says he wants to avoid

the “Swiss nightmare” (meaning that the EU’s relationship with Switzerland’s is governed by more than 100

agreements). In his view, an association agreement with the UK should “take into account the red lines on the UK

side and at the same time apply the principles of the [EU]”.

FINANCIAL SERVICES

The European Parliament’s ECON Committee will likely present a draft report on relationships between the EU and

third countries concerning financial services regulation and supervision on 24 April 2018. The report will mainly

discuss EU equivalence. The Irish MEP Brian Hayes (European People's Party) is acting as Rapporteur.

EBA has published the regular update of its Risk Dashboard summarising the main risks and vulnerabilities in the

EU banking sector for Q4 2017. Despite a generally positive trend, the risk with regard to sustainable profitability

remains high. Banks have not yet managed to increase the share of the sustainable components in their revenue.

ESMA has published the annual report on the enforcement and regulatory activities of accounting enforcers within the

EU. In this regard, Mr. Steven Maijoor (Chair of ESMA) pointed out that “[t]he convergence of supervision of IFRS

financial statements continues to be an important area of activity for ESMA and European enforcers”.

ESMA has published the first Part of its Technical Advice (TA) under the Prospectus Regulation. ESMA proposes a

large number of simplifications and adaptations of the prospectus regime, also regarding the new Universal

Registration Document (URD) for issuers of securities that are listed on regulated markets or MTFs.

The Alternative Investment Fund (AIF) industry in the EU is highly concentrated around a few large participants

and asset classes, according to ESMA’s latest report on “Trends, Risks, Vulnerabilities (TRV)”.

TAX

The Code of Conduct Group (Business Taxation) will meet in Brussels next week. The discussion will focus on the

future of the Group, on patent boxes as well as on listing and delisting tax jurisdictions from the “black list”.

NOTEWORTHY

The Commission continues its damage-limitation exercise after the controversial appointment of Mr. Juncker’s former

Head of Cabinet Martin Selmayr as the new Secretary-General of the Commission. The Commission has replied to

follow-up questions of the European Parliament's Budgetary Control Committee on the appointment.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

26 March – 29 March 2018

SWISS-EU RELATIONS

Negotiations on a future institutional framework agreement are proceeding at a quick pace, while the issue of the

electricity agreement is not being treated as a priority. Uncertainty continues to surround the procedure for the

prolongation of the EU equivalence for Swiss stock exchanges beyond December 2018. Speaking to the press this

week, European Commission Vice-President Valdis Dombrovskis reacted calmly to the Federal Council’s decision to

open the consultation (“Vernehmlassung”) on the Swiss Cohesion Contribution. He reiterated the EU’s position that a

resolution of the sectoral issues is conditional on satisfactory progress in the institutional dossier.

BREXIT

The Commission has published a Notice to Stakeholders on the treatment of UK electronic identification and trust

services for electronic transactions after Brexit. The Notice clarifies that UK trust service providers will be treated

as third country service providers and the services provided by them will not be considered as "qualified trust

services" within the meaning of EU legislation. Furthermore, electronic identification schemes will no longer be

recognised by the EU-27.

In an effort to reassure the banking community, the Bank of England has confirmed that non-UK financial firms will

be able to continue operating in the UK after the Brexit deadline of March 2019. In the event that the EU-UK

Withdrawal Agreement should not be ratified, the UK government will bring forward legislation to create temporary

permission regimes to allow non-EU banks to continue their activities in the UK for a limited period of time.

FINANCIAL SERVICES

The Commission proposes to reduce the costs of cross-border payments in Euro for residents in EU Member

States outside the Euro area. The proposal also suggests bringing more transparency and competition to

currency conversion services when consumers are buying goods or services in a different currency than their own.

ESMA has updated its MiFID II Q&A on market structures and transparency topics and the Q&A on MiFID II

commodity derivatives topics.

ESMA has published draft supplementary guidance on the use of non-EU credit ratings in the EU. Interested parties

are invited to submit comments until 25 May 2018.

ESMA has further published guidelines on how to report internalised settlements under the Central Securities

Depositories Regulation (CSDR).

ESMA has issued a Q&A on profit forecasts under the Prospectus Regulation.

EMSA has clarified MiFIR quoting obligations for systematic internalisers.

EMSA has adopted guidelines on how trade repositories should calculate derivative positions under EMIR. It has

further opened a public consultation on draft Regulatory Technical Standards (RTS) concerning applications of firms

seeking to register with ESMA as securitisation repositories. Responses are due by 23 May 2018.

The ECB has published its Annual Report on Supervisory Activities 2017.

TAX

Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs has

reprimanded the seven EU Member States Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the

Netherlands for their policies that supposedly facilitate tax avoidance by global companies. His comments were

based on the Report on aggressive tax planning indicators of last year.

EU INSTITUTIONS

The Commission responded to 134 questions put forward by Members of the European Parliament on Martin

Selmayr’s appointment as the new Secretary-General. The Commission argues that Selmayr’s appointment is fully

compliant with applicable rules.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

19 March – 23 March 2018

SWISS-EU RELATIONS

The European Commission has not yet made up its mind about the procedure that must be followed to reach an

extension of the EU equivalence for the trading of shares on Swiss stock exchanges.

BREXIT

The EU and UK negotiation teams have reached a political agreement on a Brexit transition deal that will ease

business fears over a post-Brexit cliff edge but leaves the issue of the Irish border unresolved. Brexit transition will

end on December 31, 2020.

The European Council has endorsed the Guidelines on the negotiation of a future trade agreement with the UK.

These need to be clarified in Negotiation Directives. The Guidelines envisage that the future EU-UK partnership

should include ambitious provisions on the movement of natural persons, based on full reciprocity and non-

discrimination.

Meanwhile the General Affairs Council, which is mainly composed of the European Affairs Ministers from all EU

Member States, has discussed that the UK financial services sector may be able to benefit from continued EU market

access by means of a reviewed and improved EU equivalence. This suggestion has had a mixed echo in the

European Commission. The hard-line view is that this shall not go beyond the adjustments that are currently being

considered as part of the on-going EU investment firms review.

FINANCIAL SERVICES

The Commission has adopted a Communication on the law applicable to the proprietary effects of securities

transactions. The Communication is meant to clarify which country's law applies to determine who owns the

underlying assets of a transaction. The opinions expressed in the document are non-binding.

ESMA has clarified the treatment of packages under trading obligation for derivatives according to MIFIR. The

published Opinion is intended to clarify the categories of packages for which the derivative components subject to the

trading obligation are always required to be traded on a trading venue.

EBA has published an assessment of the current credit risk mitigation framework. The Report clarifies the

application to the different credit risk approaches of the provisions currently laid down in the Capital Requirements

Regulation (CRR).

ECB has published two guides on the assessment of license applications for banks and fintech credit institutions.

European Commission Vice-President Dombrovskis took position on the increasing difficulties of so-called

‘accidental Americans’ caused by EU banks refusing to accept them as customers as a consequence of

FATCA. In his answer to a Parliamentary Question Dombrovskis insisted on the right of EU consumers to

have access to a payment account with basic features according to the EU Payment Accounts Directive.

ESMA has published responses to its consultation on draft RTS under the new Prospectus Regulation.

A Think Tank of the European Parliament has published a study on the value added that could be created with

the introduction of the proposed Pan-European Pension Product (PEPP), in particular from a taxation

viewpoint.

TAX

The Commission has put in place first EU counter-measures against those countries listed on the ‘black list’ of non-

cooperative tax jurisdictions. The new Commission Communication provides that monies from EU external

development and investment funds cannot be channelled or transited through entities in countries on the black list.

As has been widely reported, the Commission has presented its proposals on the taxation of the digital economy.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

12 March – 16 March 2018

BREXIT Ahead of the 22-23 March EU Summit, which is expected to approve new negotiation guidelines, the European

Parliament has recommended that the UK should in future be linked to the EU through an association agreement,

similar to the current EU-Israel Agreement. In the Parliament’s opinion, such association agreement could secure a

consistent governance framework, including a robust dispute resolution mechanism, “thus avoiding a proliferation of

bilateral agreements and the shortcomings which characterise the EU’s relationship with Switzerland”.

Meanwhile, the British Office for Budget Responsibility produced first concrete figures on the UK’s future payments to

the EU. Britain will pay £37.1 billion to the European Union over the next 45 years, clearing its bill in 2064.

FINANCIAL SERVICES In an effort to complete the Capital Market Union before Brexit, the European Commission has presented new

legislative proposals, namely a Directive and Regulation on covered bonds; a Regulation on cross-border

distribution of collective investment funds as well as a Regulation on the law applicable to the third-party effects

of assignments of claims.

The Regulatory Technical Standards (RTS) for strong customer authentication and common and secure

open standards of communication, supplementing the PSD2 Directive, have been published in the Official

Journal of the EU. The RTS will apply from 14 September 2019, with certain features already becoming

effective in March 2019.

The Commission proposed detailed plans to tackle the EU’s €1 trillion of non-performing loans. The legislative package includes a proposal for a Directive on credit servicers, credit purchasers and the recovery of collateral, a

proposal for a Regulation amending the Capital Requirements Regulation (CRR) as regards minimum loss coverage

for non-performing exposures and a blueprint on the set-up of national asset management companies (AMCs).

EBA has issued an opinion on measures to address macroprudential risk; it has advised the Commission on

the use of prudential backstops to prevent the building-up of new non-performing loans and has launched a call for

expression of interest for membership to its Banking Stakeholder Group (BSG).

EBA has published a FinTech roadmap setting out its priorities for 2018/2019.

The Joint Committee of the ESAs published its final report on big data: while the development of big data

poses some potential risks to financial services consumers, the benefits currently outweigh the risks, while

many risks are mitigated by existing legislation.

TAX The Council has removed three jurisdictions (Bahrain, the Marshall Islands and Saint Lucia) from the “black list” of

non-cooperative tax jurisdictions, to add their names to the “grey list”, and has in turn added three others

(Bahamas, Saint Kitts and Nevis and the US Virgin Islands) to the “black list”. It is expected that the Bahamas and

Saint Kitts and Nevis will come off the blacklist in May.

The Economic and Financial Affairs Council reached political agreement on new transparency rules for

intermediaries, such as tax advisers. Under the new rules intermediaries will have to report aggressive tax planning

schemes with a cross-border element. The national tax authorities will share this information as part of the automatic

information exchange. The reporting requirements will enter into force on 1 July 2020.

The European Parliament has approved the nomination of 45 members to the new Special Committee on Financial

Crimes, Tax Evasion and Tax Avoidance. According to its mandate, the new committee shall examine “national

schemes providing tax privileges”, VAT fraud and the problems of ensuring tax compliance in the digital economy.

The first gathering of this committee will take place on 22 March. The Committee has a 12-month mandate.

NOTEWORTHY The budget committee of the European Parliament will look into last month's "fast-track promotion" of Martin

Selmayr to the Secretary-General position at the European Commission. In a debate in the Parliament’s Plenary,

several Parliamentarians called the appointment a "perfect stitch up" and a "grave error" that only fuels

euroscepticism. The European Ombudsman is also expected to take position.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

5 March – 9 March 2018

SWISS – EU RELATIONS

The European Commission offered cautious comments after Ignazio Cassis’ press conference last week: “The

Commission's priority remains the negotiation of an institutional framework agreement. This will allow the EU to

envisage further market access for Switzerland in different areas and according to EU interests. This is fully in line

with the conclusions of the General Affairs Council (of February 2014) and the Council conclusions of February

2017 – and with the Swiss Federal Government's own intentions to conclude the institutional agreement by the

end of 2018). The Commission's negotiators have met with the new Swiss negotiator Roberto Balzaretti and we

see a strong willingness to work on the outstanding issues, notably the role of the Court of Justice of the European

Union in dispute resolution and making sure our companies operate on a level playing field through rules on state

aid. Both these issues need to be tackled in the Agreement. The aim is and remains to conclude work in 2018. For

the Commission, the most important principle guiding the negotiations remains that there cannot be any cherry-

picking.”

BREXIT

Prime Minister Theresa May said in a speech on the UK’s future partnership with the EU that the UK will seek to

remain in the EU single market systems for certain areas. She wants the "deepest and broadest possible" Brexit

deal.

The President of the European Council Donald Tusk issued draft guidelines for the post-EU Brexit deal (link to

statement by Daniel Tusk). While the Guidelines underline the merits of a close partnership with the UK, the EU’s

offer is effectively constrained to a free-trade agreement because of London’s insistence on quitting the EU single

market and the customs union. Separately, Tusk ruled out a comprehensive deal on financial services.

Next week the European Parliament will vote on a resolution on the future EU-UK relationship.

FINANCIAL SERVICES

The EBA CRD IV-CRR/Basel III monitoring exercise has shown further improvement of EU banks capital

leverage and liquidity ratios.

The European Commission has presented an Action Plan on financing sustainable growth (“green finance”).

The Plan aims to: (a) reorient capital flows towards sustainable investment in order to achieve sustainable and

inclusive growth; (b) manage financial risks stemming from climate change, resource depletion, environmental

degradation and social issues; and (c) foster transparency and long-termism in financial and economic activity.

The Commission forward new rules that will help crowdfunding platforms to grow across the EU's single market.

Next week, the Economic and Financial Affairs Council (ECOFIN) will take stock of the discussion on the

proposed Regulation establishing a European deposit insurance scheme (EDIS).

TAX

After a roundtable with industry representatives, the Commission plans to present a legislative proposal

accompanied by a communication on the taxation of the digital economy on 21 March 2018.

The Economic and Financial Affairs Council (ECOFIN) of next week is expected to agree on new measures to

ensure tax transparency for intermediaries (please see the agenda).

EU INSTITUTIONS

The appointment of Mr. Juncker’s former Head of Cabinet Martin Selmayr as Secretary-General of the

Commission has provoked public criticism. The appointment will be debated in the Plenary of the European

Parliament on Monday.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

26 February – 2 March 2018

SWISS – EU RELATIONS

Swiss and EU negotiators continue to actively explore several solutions which could facilitate an understanding regarding what should be the substance and the form of an institutional agreement. Once the Swiss government has further defined the scope of its existing negotiation mandate, both sides will be able to then start a formal round of discussions.

BREXIT

The European Commission has published a draft of the Withdrawal Agreement on the withdrawal of the UK from the

EU and EURATOM. The draft governs citizens' rights and other separation issues such as goods placed on the

market before the withdrawal date, the financial settlement, transitional arrangements, as well as institutional issues.

A separate protocol concerns Ireland/Northern Ireland. According to the EU’s proposal, any disputes on the

interpretation and the application of the Agreeement shall be settled by the European Court of Justice if the parties

are unable to reach a compromise in the Joint Committee.

Prior to the publication, Michel Barnier expressed his frustration with David Davis over Brexit talks. In Barnier’s opinion, the talks are “in a form of stagnation” that he links to Mr. Davis’s absence from Brussels.

Meanwhile, Scotland and Wales appear to be heading towards a possible constitutional clash with the U.K. given the messy departure debate from the EU.

FINANCIAL SERVICES

The European Parliament’s ECON Committee has criticized the decision to relocate the EBA from London to Paris

(draft report).

The European Commission still has not made up its mind concerning the regulation of cryptocurrencies, as evidenced in a speech by Vice-President of the European Commission Valdis Dombrovskis (Roundtable on cryptocurrencies in Brussels).

Steven Maijoor, Chair of ESMA has highlighted the challenges that FinTech pose for financial market regulators in a keynote speech at the Second Annual FinTech and Digital Innovation Conference.

Yves Mersch, Member of the Executive Board of the ECB, denied claims that there is no level-playing field between third-party payment services providers and incumbent banks in a speech on Innovation and digitalisation in payment services. He argued that there should only be one, or at most a few, technical application programming interfaces (APIs) because competition should take place at the service, and not the technical specification level.

The EBA has issued an opinion on measures to address macroprudential risk.

The ECB published two consultation papers on the draft principles underlying its expectations for banks' internal

capital adequacy assessment processes (ICAAPs) and internal liquidity adequacy assessment processes

(ILAAPs). The two draft guides are accompanied by FAQs. The consultation is open until 4 May 2018 (link to press

release).

The ECB published a Working Paper on “Cross-border banking in the EU since the crisis: what is driving the great

retrenchment?”

ESMA has updated the EMIR validation rules for reports. The update concerns the reporting of exchange-traded

derivatives in products for which the effective date may be earlier than the date of execution; and the identification of

products in reports submitted on or after 3 January 2018.

TAX

The General-Secretariat of the Council has issued a compilation of the guidance notes agreed by the Code of Conduct Group on business taxation since its creation in March 1998.

The European Parliament decided to establish a new special committee on financial crime, tax evasion and avoidance. It will replace the recently-dissolved PANA Committee and will notably deal with the “Paradise Papers”

investigation.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

19 February – 23 February 2018

SWISS – EU RELATIONS

The surprise appointment of Jean-Claude Juncker’s Head of Cabinet Martin Selmayr as the a new Commission Secretary-General of the European Commission means that Mr Selmayr will continue to exercise a significant influence on the Swiss-EU relation beyond 2019, when a new Commission is in place. The extension of the appointment of Dominique Ristori as the Director-General for Energy ensures continuity in another sector, which is currently in discussion between Switzerland and the EU. Meanwhile, Olivier Guersent continues to be responsible for financial services, including EU market access issues, in DG FISMA.

BREXIT

David Davis, the Brexit secretary, clarified (speech) that Brexit means compromise and that the U.K.’s businesses won’t be relieved of the EU regulations and standards.

Meanwhile, the U.K.’s Financial Conduct Authority FCA warned lawmakers over post-Brexit market rules.

FINANCIAL SERVICES

Mr. Ilmārs Rimšēvičs, Governor of the Central Bank of Latvia, was detained in a financial probe. However, he denounces accusations of wrongdoing. Following the instruction from the ECB, the Financial and Capital Markets Commission (the Latvian Regulator) has imposed restrictions on payments by ABLV Bank.

ESMA launched a stakeholder survey open for all market participants and other stakeholders regarding the way they interact with ESMA.

ESMA has designated the EU national authorities to which the opening of insolvency proceedings in respect of a participant to a system must be notified pursuant to the Settlement Finality Directive.

ESMA has also published a list of the designated payment and securities settlement systems notified by the EU Member States. The list includes for example SIX x-clear system.

The EU Presidency published a compromise proposal for a legislative amendment of EU Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms. The proposed amendment concerns exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures.

Two further EU Presidency compromise proposals concern the implementation of the FSB’s Principles and Term Sheet on Total Loss-Absorbing Capacity (TLAC) (see links here and here).

EU Commissioner Valdis Dombrovskis has responded to a written parliamentary question on Bitcoin.

TAX

A consolidated version of the "EU list of non-cooperative jurisdictions for tax purposes" has been published.

The Code of Conduct Group (Business Taxation) has published procedural guidelines for carrying out the process of monitoring the commitments submitted by those jurisdictions concerned by the EU “black” and ”grey lists” of non-cooperative jurisdictions for tax purposes. According to the guidelines, Switzerland would have to submit by 9 March 2018 a “precise timeline and description of the steps” for implementation of reform of corporate taxation. A corresponding formal letter has been received by the Swiss government services.

Pierre Moscovici, EU Tax Commissioner is determined to introduce new legislation to tax digital companies in March 2018 and invites tech industry to be part of the solution.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

12 February – 16 February 2018

SWISS – EU RELATIONS

The Services of the European Commission are exploring the technical ways and means to draft several anchor points for the forthcoming negotiation with Switzerland. Assuming a green light from the Swiss government and should a new round start on the basis of an expanded mandate, the negotiation would then cover miscellaneous market access questions. However, both sides understand that the key objective would be to agree on a revised institutional agreement. The recent statements of the President of the European Commission make it obvious that the current discomfort surrounding the Swiss-EU relations would have to be dispelled.

BREXIT

The Commission has published several notices for stakeholders on the withdrawal of the U.K. The notice on withdrawal in the field of banking and payment services states that all EU primary and secondary law will cease to apply as of 30 March 2019, 00:00h (CET). U.K.’s entities which are currently providing banking, payment services and e-money issuing, will no longer benefit from the "EU passport".

Ms. Theresa May plans for ‘immediate’ break with EU after Brexit. Her plan envisages the U.K. diverging from a series of key EU rules “immediately” after the end of the transition period. Meanwhile, a survey of senior executives in the U.K., France, Germany and Spain shows that a majority of companies expect a “soft Brexit” and believe that U.K.-EU future relationship will maintain the “passporting” rights for the banks.

The U.K. Home Office insists that EU citizens who arrive to the U.K. during Brexit transition period will not have the automatic right to remain in the U.K.

The EU is preparing a draft document on the U.K. withdrawal that envisions Northern Ireland remaining in the customs union.

Boris Johnson, the advocate of a “quick and clean Brexit”, is becoming increasingly frustrated. In a controversial speech, he emphasized that reversing Brexit would be a “disastrous mistake” that would lead to “permanent and ineradicable feelings of betrayal”.

FINANCIAL SERVICES

The ESMA Board of Supervisors has recently appointed four stakeholders to become members of the Securities and Markets Stakeholder Group (SMSG).

The three ESAs (ESMA, EBA and EIOPA) have warned consumers on the risks of Virtual Currencies (VCs). VCs are said to be highly risky, not backed by any tangible assets and unregulated under EU law.

The European Systemic Risk Board (ESRB) has published a recommendation on action to address systemic risks related to liquidity mismatches and the use of leverage in investment funds.

The EBA published a corrective update (version 2.6.0.1) of XBRL taxonomy that Competent Authorities shall use for the remittance of data under the Implementing Technical Standards (ITS) on benchmarking of internal approaches.

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Brussels Weekly News Prepared for SwissBanking

5 February – 9 February 2018

SWISS – EU RELATIONS

On February 9, Switzerland, represented by its new Secretary of State, have resumed their discussions. The goal of what should be a new round of negotiations is to agree on a “market access facilitation agreement” – an expression intended to replace the term “institutional agreement”. The forthcoming negotiations will therefore include other agreements such as electricity, possibly services. All of that subject to the prior approval of the Swiss Federal Council (February 21 or a later date).

The EU has presented a draft proposal describing the role and functioning of an arbitration panel which would pass on certain situations where the parties, through the “Mixed Committee” are unable to agree. The Swiss side has already described the EU proposal as hardly adequate under the current circumstances.

BREXIT

The European Commission has published a draft text of the transitional arrangements to be included in the Article 50 Withdrawal Agreement. As the U.K. will remain part of the Single Market and the Customs Union (with all four freedoms) until 31 December 2020, the U.K. will remain bound by EU law and the jurisdiction of the European Court of Justice (CJEU). The acquis will continue to apply in full throughout the transition period. Any changes made to the acquis should automatically apply. Thus, the U.K. could be forced to accept nearly 40 EU directives. The U.K. will be a third country as of 30 March 2019 and will no longer be represented in EU institutions, or agencies.

Mr. Michel Barnier, following his working lunch with Mr. David Davis, made a statement stressing the fact that barriers to trade and goods and services are unavoidable once the U.K. leaves the Single Market.

Meanwhile, Ms. Sabine Lautenschläger (Member of the Executive Board of the ECB) says that a transition agreement is not guaranteed and that British banks are running out of time on post-Brexit EU access.

Eight EU Member States (Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovenia and Slovakia) expressed their willingness to commit to the bigger EU budget (cap to 1.1 % of the bloc’s gross national income (GNI), from the longstanding limit of 1 %).

FINANCIAL SERVICES

The CJEU has declared in a preliminary ruling that a three-party card scheme involving a co-branding partner or an agent is subject to the same EU legal restrictions as a four-party scheme with respect to interchange fees.

ESMA has published various documents, including its 2018 Supervisory Convergence Programme; standards on supervisory cooperation for market abuse investigations; conflict of interest guidelines for CCPs; an updated Q&A on transparency and market structures under MiFID II; an updated Q&A on EMIR implementation; an updated Q&A on CSDR; an updated Q&A on short selling; an updated Q&A on the Benchmarks Regulation; and finally the responses to the public consultation on proposed amendment to MiFID II RTS 1, and on position calculation under EMIR.

EBA has updated its methodological guide on risk indicators and detailed risk analysis tools.

Commission has adopted a delegated Regulation on regulatory technical standards (RTS) for the materiality threshold for credit obligations past due.

The High-Level Expert Group on Sustainable Finance (HLEG) has published its final report.

MONEY LAUNDERING

The European Parliament has confirmed the Commission’s blacklist of countries at risk of money laundering. Tunisia, Sri Lanka and Trinidad and Tobago are added to the money laundering blacklist.

DATA PROTECTION

“Smart contracts” and other blockchain technologies such as unregulated digital tokens will get passed over in an upcoming round of EU rulemaking but may demand action in the future. Any legislation would come under a new set of leaders due to take office in 2019.

Austrian data protection Chief Ms. Andrea Jelinek is appointed as new Head of the “Article 29 Working Party”.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

29 January – 2 February 2018

SWISS – EU RELATIONS

In a letter addressed to the European Commission, 11 EU Member States (Austria, Czech Republic, Germany, Luxembourg, Netherlands, Hungary, Slovakia, Slovenia, Latvia, Lithuania and Estonia) criticized the Commission’s decision to grant equivalence of one year only to the Swiss Stock Exchanges. The Commission indicated that its decision would not be amended.

The European Commission has reacted positively, but cautiously to Mr. Cassis’ clarifications regarding the calendar Switzerland may consider in its bilateral negotiation with the EU. The Commission has signalled that, in line with the 2017 EU Council Conclusions, the finalization of an institutional agreement remained a priority (see statement

1). If an agreement can be reached – but not signed – still this year, Switzerland and the EU are

of the view that the finalization of an institutional agreement would have to be deferred to 2020.

BREXIT

The Council, meeting (in EU-27 format) adopted supplementing negotiating directives for the Brexit negotiations.. As specified in the outcome of proceedings, the Commission, together with the EU negotiator, has a mandate to start discussions with the U.K. on the transition period. The proposed end date for the transition period is 31 December 2020.

In a turn of events reminiscent of the Swiss-EU debate on the cohesion contribution, diplomats are of the opinion that the U.K. should pay for its financial services sector to access the EU single market post Brexit. This option has not yet been discussed formally between the EU-27. The EU negotiators see no room for discussion on maintaining “passport” access to the EU for the UK-domiciled banks, but they are willing to consider a free trade mechanism.

A Brexit impact report analysis will be released by the U.K. The U.K. Parliament’s Financial Affairs Sub-Committee is of the opinion that the financial services industry needs some clarity on post-Brexit market access.

FINANCIAL SERVICES

An EU-wide stress test exercise was launched by EBA on 31 January. This test features Brexit and IFRS 9. The adverse scenario implies a deviation of EU GDP from its baseline level by 8.3% in 2020, resulting in the most severe scenario to date. Results of the exercise are expected by 2 November 2018.

The ECON Committee of the EU Parliament has published its draft report on amendments for loss-absorbing and recapitalisation capacity of credit institutions and investment firms.

The Parliament is leading a campaign against expanding the mandate of ESMA.

The Commission has opened the 'EU Blockchain Observatory and Forum' to observe the development of decentralized-ledger technology, which includes Bitcoin.

TAXATION

Commissioner Moscovici has taken a position on the compatibility of patent boxes with EU law.

Mr. Moscovici has also taken a position on the issue of automatic exchange of information.

MONEY LAUNDERING

The ECON and LIBE Committees of the Parliament have voted to amend a Delegated Regulation supplementing the AMLD 4 Directive to include Tunisia, Sri Lanka as well as Trinidad and Tobago in a list of high-risk third countries with strategic deficiencies.

DATA PROTECTION

Commissioner Věra Jourová has declared in an online Q&A session that the fines foreseen by the GDPR of up to 4% of companies’ annual turnover should only be imposed in exceptional cases.

1“For the European Commission, the priority remains the negotiation of an institutional framework agreement which would allow the EU to envisage further market access for Switzerland in different areas and according to EU interests. This is fully in line with the conclusions of the General Affairs Council (of February 2014) and the Council conclusions of February 2017 – and with the Swiss Federal Government's own intentions to conclude the institutional agreement by the end of 2018. President Juncker will continue to personally invest all the time and efforts necessary to advance our common work on this in order to use this "window of opportunity", as Foreign Minister Cassis has put it himself.”

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

22 – 26 January 2018

SWISS – EU RELATIONS

On 25 January 2018, the European Parliament’s ECON Committee met to discuss the scrutiny of delegated acts and implementing measures with the Commission and ESMA on the basis of a briefing document. During the meeting Head of Unit Tilman Lueder from DG FISMA explained why the Commission had decided to limit the duration of the equivalence for Swiss stock exchanges to one year: according to him, the Commission has observed a significant migration of trades to Switzerland since the adoption of the equivalence decision. Swiss stock exchanges increased their share in the trading of Swiss blue chips from 61 to 71% in the first three weeks of January 2018. Given these circumstances, the Commission feels justified to proceed with caution in the case of Switzerland. DG FISMA and ESMA are looking into the issue and will propose a solution in order to ensure that the EU has no competitive disadvantage. Observers close to the issue believe that this explanation is far-fetched and in fact, the migration is the result of a technical flaw in MiFID II, which concerns tick sizes.

FINANCIAL SERVICES

EU Member States continue to disagree on the European Deposit Insurance System (EDIS), which delays the

completion of the European Banking Union.

The Eurogroup has appointed Hans Vijlbrief as the new President of the Eurogroup working group.

The EU Finance Ministers have discussed measures to reduce the size of bad-loan portfolios, helping free up

capital for fresh lending.

The European Commission is set to make legislative proposals in March to remove obstacles for lenders to sell on non-performing debt to investors.

Meanwhile, Danièle Nouy of the ECB’s Supervisory Board announced in a speech that the guidance which will set out how banks should make provisions for new non-performing loans will be delayed, probably until March.

ESMA has published an extended version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments, adding further instruments.

EBA has published an updated list of credit institutions that are exempted from or subject to a higher cap on inflows in the calculation of the Liquidity Coverage Ratio (LCR).

EBA will formally launch the 2018 EU-wide stress test on 31 January 2018. The EBA will also publish common

macroeconomic scenarios for this exercise.

In this week’s ECON Committee meeting the Commission exchanged views with EBA on the Regulatory Technical Standards (RTS) for PDS2. The Commission is of the opinion that the proposed RTS accommodate concerns about the screen scraping issue. EBA does not share this view and in fact believes that the proposed extension of the screen scraping is problematic. The EBA and the national authorities of the EU Member States are not equipped to carry out the IT-based assessment that is foreseen by the RTS.

TAX TRANSPARENCY

As anticipated, EU finance ministers have officially removed Barbados, Grenada, South Korea, Macau, Mongolia, Panama, Tunisia, and the United Arab Emirates from the blacklist of non-cooperative tax jurisdictions. This change has been met with criticism. In an interview with the Swiss French-speaking television, the European Commissioner Moscovici has expressed his hope that Switzerland will be removed from the “gray list” of non-cooperative jurisdictions in the coming months, although this seems hardly realistic.

ESA has published an opinion on the use of innovative solutions by credit and financial institutions when complying with customer due diligence obligations. The stated aim is to enhance Anti-Money Laundering and Countering the

Financing of Terrorism (AML/CFT) controls.

The Parliament is planning to establish a successor to the previous Committee of Inquiry into Money laundering, tax avoidance and tax evasion (PANA) for the remainder of the current Parliament’s term until 2019. A permanent PANA Committee shall be established after the EU elections in 2019. The mandate still needs to be defined.

DATA PROTECTION

As part of the preparation for the implementation of the EU General Data Protection Regulation (GDPR), the

Commission has published guidance. The Commission has also launched a new online tool dedicated to SMEs.

Although the Commission argues that the guidance will facilitate a direct and smooth application of the new data protection rules across the EU as of 25 May 2018, it is actually largely superficial. When the GDPR will enter into force, the Article 29 Working Party (Art. 29 WP) will be replaced by the European Data Protection Board (EDPB).

Switzerland is not a member of Art. 29 WP.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

15 – 19 January 2018

SWISS – EU RELATIONS

EU sources unofficially confirmed the general accuracy of the proposed, still undisclosed Swiss “reset” of the Swiss-EU bilateral dossier. The EU has not formally indicated that the new approach is workable and has the support of the Member States. This is a subject which will be broached in Davos next week, where several EU Commissioners, including the Commission President, will be in attendance.

The EU is interested to pursue the idea of a new type of institutional agreement – to be called “Market Access Agreement”. In a nutshell and these explanations should be confirmed in greater detail shortly, this agreement might include the creation of a neutral arbitration panel, which would hear the parties in case of diverging interpretations of certain provisions in the bilateral agreements. The EU Court of Justice (CJEU) would however continue to exercise ultimate control once the arbitration panel has rendered an opinion. EU sources do not rule out that the Swiss Federal Tribunal might be asked to opine in the case of disagreement between the parties, prior to the sending of a request for interpretation to the CJEU.

Simultaneously, Switzerland and the EU would begin negotiations relating to several aspects of the internal market, e.g. financial services, electricity, roaming, etc. Fresh negotiations could start as early as this spring. It being understood, however, that the EU would like to have the new, restructured, institutional agreement finalized by the end of this year with it being eventually initiated in 2019.

BREXIT

According to additional negotiating directives, which are still under discussion, the EU27 will ask Britain to continue to honour existing EU trade agreements with third countries during a post-Brexit transitional period. This could mean that the UK will continue to be bound by the Swiss-EU Free Trade Agreement, and possibly other bilateral agreements. Whether or not the Swiss-EU Free Movement of Persons Agreement is included, is unclear. According to the EU, the UK will have to ask for authorization if it wishes to conclude new trade agreements with third countries. The draft directives are due to be approved on January 29 by EU ministers in the General Affairs Council.

FINANCIAL SERVICES

The EBA has published a Report on the implementation of its Guidelines on methods for calculating contributions to deposit guarantee schemes (DGSs). The Report, which assesses authorities' compliance with the principles outlined in the EBA Guidelines, concludes that further analysis and greater experience of the risk-based systems in use is needed before proposing any changes to the current Guidelines.

Commission Delegated Regulation (EU) 2018/72 on payment card schemes has been published. This Regulation establishes the requirements to be complied with by payment card schemes and processing entities to ensure the application of Article 7(1)(a) of Regulation (EU) 2015/751 on interchange fees for card-based payment transactions.

TAXATION

The EU Finance Ministers will transfer eight countries from the blacklist of non-cooperative tax jurisdictions to the so-called ‘grey list’. The decision will be made official during an Economic and Financial Affairs Council meeting next week. The countries concerned are, Barbados, Grenada, South Korea, Macau (a Chinese autonomous region), Mongolia, Panama, Tunisia and the United Arab Emirates. There are indications that the Council will adopt a similar decision soon, probably in February, when it is expected to remove the US territories Guam and American Samoa, and possibly other countries, from the blacklist.

The Commission has presented two proposals (VAT for SME and VAT rates) as part of its VAT reform package. The proposals are part of the Commission’s push to create a “single EU VAT area”.

DATA PROTECTION

As part of the ongoing review of the adequacy of data protection in twelve third countries including the US, there are indications that the European Commission has reservations about the level of data protection in Switzerland.

jsproge@ teptoe.com

Brussels Weekly News Prepared for SwissBanking

1 – 12 January 2018

SWISS – EU RELATIONS

The European Commission has not officially commented on recent statements by the Federal Council members on the EU equivalence issue and the “grey list” for non-cooperative tax jurisdictions. Meanwhile, EU officials continue to insist on the need of an institutional agreement. The Commission thus intends to have an amended draft agreement in place, no later than April.

The upcoming meeting of the EFTA Group of the Council of the EU on 23 January may provide an opportunity for the Member States to take stock of the state of the relations to Switzerland. There seems to be a visible, audible and growing importance with the large Member States regarding the institutions stalemate.

The Swiss cohesion contribution remains a sensitive issue for the Member States, in particular against the background of EU budget discussions. On 8 and 9 January European Commission initiated the debate on the new long-term budget, called the Multi-annual Financial Framework (MFF). The Commission faced demands from the regions most exposed to Brexit for the creation of a special fund to help cushion the economic impact of the UK’s departure from the bloc.

BREXIT

On 1 January Bulgaria took over the rotating Presidency of the Council of the EU for the first time. The Bulgarian Presidency underlines in its Work Programme that it will support proactively the implementation of the BREXIT conclusions of the European Council of December 2017. The key priority is to safeguard the unity of the remaining 27 Member States.

On 9 January, M. Barnier gave a speech at the Trends Manager of the Year 2017 event. His main message was that the EU will not accept a deal on financial services with the UK beyond the existing equivalence framework. The only EU-UK model of cooperation possible is a free trade agreement, which may include provisions on regulatory cooperation in the financial services sector – as is the case in the EU-Japan Free Trade Agreement. Interestingly, Mr. Barnier did not mention the EU-Canada Comprehensive Economic and Trade Agreement – CETA, which is another frequently referred to example. As long as the EU market access for UK-domiciled banks is unresolved, the conclusion of a separate arrangement on financial services with Switzerland is unlikely.

On 9 January the Commission has published a Notice to stakeholders on withdrawal of the EU from the Union and EU Rules in the field of data protection.

FINANCIAL SERVICES

On 3 January the revised Markets in Financial Instruments Directive (MiFID II) and the Regulation on Markets in Financial Instruments (MiFIR) entered into force. Only 11 EU Member States have fully transposed the directive. The European Commission has launched infringement proceedings against the outliers.

On 9 January ESMA published the Public Register for the Trading Obligation for derivatives under MiFIR. The register provides clarity to the market on the class of derivatives subject to the trading obligation, the trading venues on which those derivatives can be traded, and the dates on which the obligation takes effect depending on the size of firms.

On 12 January EBA published its final Guidelines on disclosure requirements of IFRS 9 or analogous expected credit losses (ECLs).

On 13 January the Directive on payment services (PSD2) entered into effect. Only 6 EU Member States (CZ, DK, DE, EE, FR and SK) have transposed the directive.

The recovery and resolution proposal for central counter-parties (CCPs) now contains further differentiation between default and non-default losses, as well as what should be set out in recovery plans for such losses. The proposal is unlikely to make much further progress over the next few months, until the debate on the supervision of clearing house will start in earnest.

As of 1 January 2018, EU national tax authorities have direct access to information on beneficial ownership, trusts and other entities, as well as customer due diligence records. These rules are enshrined in the Directive on Administrative Cooperation. According to the Commission, the new rules should enable tax authorities to react quickly and efficiently to cases of tax evasion and avoidance.