Projective Group’s Risk & Compliance specialists closely monitor developments in financial laws and regulations. Using our compliance software Ruler, we keep track of all current affairs. We then determine the impact of the changes and translate the developments into the daily practice of our clients.
What developments should your organisation be aware of? In our quarterly Regulatory Updates, we provide a structured overview of regulatory changes and their impact on financial institutions. In this article, we highlight a number of developments.
What laws and regulations have recently come into force?
On 3 November 2023, the ‘EBA Guidelines for the effective management of money laundering and terrorist financing risks in the provision of access to financial services’ entered into force. With these guidelines, the EBA aims to ensure that customers, especially the most vulnerable ones, are not denied access to financial services without a valid reason.
Delegated Regulation 2023/2175 on risk retention for securitisations entered into force on 7 November 2023. A development we commented on in our regulatory update for Q4 2023.
On 1 January 2024, the Payment Service Providers Directive Implementation Act (CESOP) entered into force. As a result, payment service providers that process 25 or more cross-border payments per payee per quarter have a duty to keep payment information in a register and provide it to the Tax Authorities.
On 1 January 2024, the Mortgage Credit Amendment Regulations 2024 also entered into force. This sets the lending standards for 2024 for the provision of mortgage credit. For instance, it stipulates that the maximum allowable mortgage for households will partly depend on the energy label of the house.
Regulatory update
1.Revision of ELTIF regulation
The ELTIF regulation has been amended with effect from 10 January 2024. The first version of the ELTIF regulation was published back in 2015. ELTIF stands for European Long Term Investment Fund. It is intended for fund managers already authorised under AIFMD that invest in long-term investments (such as infrastructure, real estate or private equity). These fund managers can apply for a separate label under the ELTIF regulation. If they do so, however, the investment restrictions set out in the ELTIF Regulation must be met. This label allows managers to offer the ELTIF fund cross-border to retail investors within the EU. This is similar to the EuVeCA and EuSEF label.
In practice, it turned out that little or no use was being made of this ELTIF label. Therefore, the European Commission found it necessary to revise the ELTIF regulation.
The new rules provide a good number of relaxations in investment restrictions, including in:
the type of assets that may be invested in;
the regions in which investments may be made;
no minimum investment requirement of €10 million for eligible assets;
diversification requirements;
increase in allowed leverage of net asset value, but then currency risk must be sufficiently hedged.
Furthermore, entry barriers for non-professional investors have also been dropped. And it will be possible to sell ELTIFs without investment advice on the condition that the suitability test is carried out on non-professional investors. It will also allow investors to exit earlier from an ELTIF fund if certain conditions are met.
In short, with these changes, the European Commission hopes that the ELTIF fund will become more attractive to professional and retail investors keen to invest for the long term and thus contribute to growing the real economy.
The revised ELTIF regulation will apply from 10 January 2024.
2. Retail investment strategy
On 24 May 2023, the European Commission published a legislative package on retail investor protection (“Retail Investment Strategy”). With this legislative package, the European Commission aims to ensure that retail investors are better able to make informed investment decisions that better match their investment needs and objectives. The package makes changes to several existing (European) laws and regulations, including MiFID2, AIFM Directive, IDD (Insurance Directive) and PRIIPS Regulation.
With this legislative package, the EC proposes improvements in the following areas:
more disclosure requirements to improve transparency, especially on costs;
widening of the opt-up possibility to professional investor;
amended rules on permitted commissions
stricter rules against misleading marketing communications;
rules to ensure impartial and high-quality advice;
new rules on product governance and the pricing process, for both developers and distributors, with the aim of ensuring that products provided to retail investors offer the prospect of returns (“value for money”); and
detailed rules on “due pricing” of investment funds.
Negotiations on the Retail Investment Strategy have not yet started. It is unclear whether they will take place before or after the 2024 European elections. After agreement is reached in Europe, the directives will have to be implemented in national legislation. Further regulations in the form of delegated regulations will also be drafted.
3. Good practice setting up compliance function at pension funds
Last year, De Nederlandsche Bank (DNB) conducted a survey on the design of the compliance function at pension funds. Current laws and regulations do not require pension funds to set up a compliance function.
DNB prepared so-called ‘good practices’ as a result of the study. This document includes non-obligatory recommendations for the design of the compliance function to pension funds. DNB addresses the following components:
Setting up the compliance function
The compliance charter
Compliance annual plan/programme
Staffing (capacity and expertise)
The practice of the compliance function
Awareness and training
Ultimately, it is up to the pension fund to weigh up and set up the compliance function or not.
The good practices document is expected to be finally published by DNB in 2024.
4. Review benchmark regulation
On 17 October 2023, the EC published a proposal for a revision of the European Benchmarks Regulation (BMR). The proposal has two aims:
Alleviate the regulatory burden of EU managers of smaller benchmarks.
Third-country benchmarks remain available to EU users after the end of the transition period (which runs until 31 December 2025).
The European Commission is concerned that without the proposed changes, current third-country managers will not want to continue operating in the EU after the transition period. This could cause the number of available benchmarks within the EU to fall sharply, which is undesirable.
Among other things, the European Commission proposes to limit the scope of the BMR to significant and critical benchmarks, along with the EU climate transition and Paris-aligned EU benchmarks. Managers of non-significant benchmarks would no longer have to register. Also, (temporary) recognition of third-country benchmarks should become a permanent solution for such parties to access the EU.
The proposal further clarifies that only managers authorised or registered under the BMR will be allowed to have EU climate transition benchmarks (CTBs) or Paris Agreement-aligned benchmarks (PABs).
The new regulations are expected to come into force in early 2026.
5. Anti corruption directive
The European Commission announced an action plan to combat corruption in May 2023. One component of this action plan is a proposal for a directive that will require EU member states to meet common standards in their anti-corruption laws. The aim of this proposal is to ensure:
that all forms of corruption are criminalised in all EU Member States;
that legal persons can be held liable for these offences; and
that the penalties imposed are effective, proportionate and dissuasive.
The proposed directive establishes minimum rules on the definition of corruption offences and sanctions, and measures to better prevent and combat corruption.
This incorporates rules to combat corruption in the public and private sectors into a single directive for the first time at European level. This directive therefore has a much broader scope and does not specifically target the financial sector. Nevertheless, it does have an impact on financial companies because of the new definitions. It will also potentially affect the current obligation to consider corruption risk in the systematic integrity risk analysis (SIRA).
It is not expected to come into force until 2026 at the earliest.
Outlook
What other upcoming laws and regulations do you need to consider?
In our next Regulatory Update article, we will explain the following developments in more detail, among others:
We hope this article has given you an idea of the recent developments. Want to make sure you haven’t overlooked anything? Then you can request a tailor-made Regulatory Update (available in Dutch and English). You will then receive a comprehensive quarterly report with current affairs, legislative changes, regulatory publications and consultations. This report is fully tailored to your organisation and activities. The relevant developments are explained by our experienced consultants, and there is also an opportunity to ask questions, for example about ambiguities in the legislation.
With our Regulatory Update, you will be timely informed of upcoming legislative changes and will not be confronted with any surprises.
Our specialists discuss with you the possible impact on your organisation and help you think about possible next steps and their practical implementation. They can also help with an action plan for adapting policy and procedures, so that you always remain in control. For more information, please feel free to contact us.
