EU View Bulletin: 22 December 2021

We are delighted to share with you the latest EU View Bulletin. Here you will find information about the latest intel we have gathered across the EU27 together with any country specific changes to the EU27 guidelines. As with everything we do, the output is best when we get continuous feedback – so as per usual – do let us know what we can do to enhance EU View to assist you through the transition.

Latest intel on UK developments:

Gibraltar transitional arrangement extension

Regulations extending transitional arrangements made under Parts 2 and 3 of the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 were made on 09 November 2021 and came into force on 15 December 2021. The transitional arrangements enable certain firms based in Gibraltar to provide financial services in the UK, and similar firms based in the UK to access Gibraltar’s financial services market. These arrangements have now been extended by 12 months to 31 December 2022.

In the long-term, HM Treasury intends for the Gibraltar Authorisation Regime (GAR) to replace the transitional arrangements. The GAR will be established under the Financial Services Act 2021, but the relevant provisions have not yet come into effect; it has been indicated that this will happen during 2024.

Latest intel on EU27 developments:

Cross-border distribution of funds (“CBDF”):

• Key provisions of the CBDF legislation became effective on 02 August 2021.
• Whilst the implementation picture continues to develop across Europe and industry practice/regulatory guidance evolves, please see our complimentary CBDF Tracker for our latest update regarding the impact of key aspects of the legislation across the EEA (e.g. pre-marketing, marketing communication requirements and local facilities).
• Firms are now in the process of reviewing their marketing materials ahead of the CBDF ESMA Guidelines on Marketing Communications coming into effect from 02 February 2022.
• CBDF implementation now extends to:
  • Austria;
  • Croatia;
  • Cyprus;
  • Italy;
  • Latvia;
  • Malta;
  • Netherlands;
  • Portugal;
  • Slovenia; and
  • Spain.

TPRs

• In Cyprus, the expiry date of the TPR regime for UK firms that were permitted to continue providing services in Cyprus until 31 December 2021 has been extended for six months. This applies where such firms themselves, or members of the group they belong to (as the case may be), have by 31 December 2021 filed an application:
  • with the local regulator for the acquisition of a qualifying stake in an existing licensed investment firm in Cyprus; or
  • with the local regulator for the establishment of a third country branch in Cyprus; or
  • for the licensing of an investment firm in Cyprus.

A list of the successful applications will be published on the local regulator’s website confirming that firms can continue to operate in Cyprus after 31 December 2021. For successful firms an additional six months may be granted for the smooth and compliant onboarding of clients to the physical establishments in Cyprus and/or for such establishment becoming fully operational, as applicable. All other TPR entities will have to cease their activities in Cyprus by 01 January 2022.

• In Denmark, the conditional/temporary licences granted to UK entities to enable the continuation of provision of investment services and activities to customers in Denmark are expected to expire on 30 June 2022, regardless of when an application was made (see FSA’s Q&A for details). The application form is available on the FSA’s website. There have not been any updates from the FSA on what will happen following expiry of the conditional/temporary licences as they are still waiting to see what will happen at EU level. Possible scenarios are: (i) licences will automatically be extended following a statement by the FSA; (ii) firms will have to go through a streamlined/simplified version of the same application process; (iii) firms will have to resubmit new applications in full; or (iv) licences will end at expiry and will not be extended or re-issued. Counsel continue to monitor.

• In Gibraltar, counsel have confirmed that:

  • the TPR for EEA entities is ending on 31 December 2021 without an extension;
  • the TMPR for EEA entities marketing EEA AIFs remains until 31 December 2023; and
  • the UK passporting-like-regime has no set timeline, with UK collective investment schemes continuing to operate under it.

  For UCITS (EEA and non-EEA), in addition to the existing authorisation regime, there is now a new application process in effect for recognition as a foreign scheme where such UCITS is already established and recognised in its own country. Consequently, this recognition scheme enables those EEA UCITS that were promoted before 31 December 2020 to be able to continue being promoted in Gibraltar, but only until 31 December 2023 (being the same end date as EEA AIFs under the TMPR).

• In Iceland, following the implementation of MiFID2, it is still theoretically possible for a UK-based entity to obtain a cross-border licence without establishing a local presence on the basis that it is regulated to carry out the relevant activities in the UK. However, the Icelandic Regulator has informally indicated to counsel that it has never authorised a non-EEA entity to operate in Iceland based on a cross-border licence due to the ambiguities in the regulations and further uncertainty regarding the assessment of similar supervision and operations. A branch or a subsidiary is therefore required, unless (i) the relevant activity is the provision of investment services or performance of investment activities to “Professional Clients” and (ii) the UK firm is registered with ESMA, in which case no branch or subsidiary is required.

• In Portugal, counsel confirmed that the TPR is expiring on 31 December 2021 without any extension.

• In Sweden, the TPR for UK firms providing MiFID-services to professional investors in Sweden with whom they had a contractual relationship with on 29 March 2019, expires on 31 December 2021 without any extension, however, the TPR for trading on own account will become a legal exemption under Swedish laws on 01 January 2022.

  The new legal exemption will permit all non-EEA entities (not just the UK) exclusively conducting investment services in Sweden by trading on own account on Swedish trading venues via direct electronic access (DEA), to do so without requiring licensing. The exemption does not extend to market making, systematic internalisation, purchasing and selling of financial instruments on one’s own account as a service to others (e.g. back-to-back client-related trades on a Swedish trading venue) or to high frequency trading.

• In the UK, and as mentioned above, the transitional arrangements for Gibraltar-based firms have been extended for 12 months until 31 December 2022 to enable specified categories of Gibraltar-based firms to continue providing financial services in the UK and facilitate the access by similar types of UK-based firms to Gibraltar's financial services market. The Regulations came into force on 15 December 2021.

  In the long-term, HM Treasury intends for the Gibraltar Authorisation Regime (GAR) to replace the transitional arrangements. The GAR will be established under the Financial Services Act 2021, but the relevant provisions have not yet come into effect; it has been indicated that this will happen during 2024.

Cross-border permission to access EU

On 27 October 2021, the European Commission published a new Banking Package, that finalises the implementation of the Basel II agreement and aims to strengthen the resilience of the banking system, enhance supervisory powers and support the transition to climate neutrality. The package includes a number of legislative reforms and in particular proposes amendments to the Capital Requirements Directive and Capital Requirements Regulation. Like the MiFID2 reforms the new package proposes a harmonised approach to third-country branches. Under the reforms non-EU firms will required to establish a branch in the EU before starting to provide ’banking services’. It also proposes to introduce minimum standards for the authorisation, capital, liquidity, governance, reporting and supervision of branches of third-country banks in the EU. There will also be introduced a subsidiarisation mechanism which would require third-country branches to become subsidiaries when reaching a certain size and determined to be systematically important.

Changes to EU View documents:

As a result of recent developments and further clarifications from local counsel, the following updates have been made:

• Belgium – clarification that deposit-taking activities are regulated to the extent that the offshore entity solicits more than 50 depositors (cumulatively) in the jurisdiction.
• Denmark – clarification that post-implementation of the CBDF Regulation, there is no requirement to appoint a "Danish representative" as a means to ensure investor protection. However, information/facilities available to retail investors must be provided in Danish when dealing with Danish investors.
• EEA-wide changes – (i) information on the impact of the CBDF Regulation has been included across all guidelines (with additional information available on the CBDF Tracker); and (ii) clarificatory changes have been made in relation to the licensing requirements that are applicable when carrying out lending activities (specifically arranging/structuring of loans and secondary market loan trading).
• Brexit-related information has been updated for Belgium, Cyprus, Denmark, Estonia, France, Greece, Iceland, Italy, Latvia, Liechtenstein, Netherlands, Norway, Spain and Sweden.

And finally, in addition to this bulletin there is also a wealth of additional information on the Brexit pages on our website. As always, please feel free to reach out if you have specific queries we can assist with.