EU View Bulletin: 8 December 2022

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 (plus 3 EEA jurisdictions) together with any country specific changes to the EU View 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.

Latest intel on UK/EU developments:

FCA’s Temporary Permission Regime (TPR)

As you may be aware, the FCA announced back in August that that all firms in the TPR expecting to apply for full authorisation should have received a formal direction confirming their landing slot. Firms in the TPR that intend to apply for full UK authorisation, but which have not yet received a landing-slot discretion, can still apply but must do so before the end of 31 December 2022. An application from a firm in the TPR which is submitted after this date will be treated as invalid. Please see here for more information.

ESMA - Peer review into the NCAs’ handling of relocation to the EU

ESMA has just published a peer review into NCAs’ handling of relocation to the EU in the context of the UK’s withdrawal from the EU. It’s a long read but there are lots of insights into how NCAs approached post-Brexit euroshoring as well as examples of good practice specifically called out.

Key findings in the report:

• NCAs allowed in certain cases for an extensive use of outsourcing/delegation arrangements; and
• Several firms relocated with limited technical and human resources in the EU. In particular, NCAs applied different interpretations of proportionality when it came to substance requirements. This led in certain cases to some smaller firms relocating with only very minimal set-ups.

ESMA also makes a number of recommendations to achieve greater convergence at EU level on the application of the risk-based approach, the proportionality principle and on outsourcing/delegation arrangements. In addition, NCAs are encouraged to improve their assessment of the adequacy of the internal control function, the extend of outsourcing and delegation, and the appropriateness of governance arrangements, to ensure a strong set up of the EU entity at the authorisation stage.

The report is available here and the press release here.

ESMA consulting on passporting process for investment firms

As you may be aware, ESMA is currently consulting on the passporting process for investment firms. It is looking at range of modifications to the information provided in the process including:

• the marketing means the firm will use in host Member States;
• the language(s) for which the investment firm has the necessary arrangements to deal with complaints from clients from each of the host Member States in which it provides services;
• in which Member States the firm will actively use its passport as well as the categories of clients targeted; and
• the investment firm’s internal organisation in relation to the cross-border activities of the firm.
  The consultation closes on 17 February 2023.

Third country access under CRDVI

We are currently monitoring the European developments in respect of further third country restrictions on the provision of cross-border banking services in the EU. The various proposals are currently being discussed and we await further outcomes from the ECON meeting at the end of January 2023. Watch this space.

Latest intel on EU27+3 EEA developments:

Cross-border distribution of funds (CBDF)

• Whilst the implementation picture continues to develop across Europe and industry practice/regulatory guidance evolves, please see our complimentary (for subscribers to at least one European navigator: Funds matrix) 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).

The 'Quick Fix' Directive

• In the latest update, Derivatives & FX has been updated in Austria, Bulgaria, Czech Republic and Romania. For previous updates it has been updated in Belgium, Croatia, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Portugal, Slovak Republic, Slovenia, Spain and Sweden to reflect Article 1(10) of the MiFID Quick Fix (and the corresponding amendment to Article 57 of MiFID2) to note certain changes to the position limit regime for commodity derivatives.
• In Iceland, Liechtenstein and Norway MiFID Quick Fix implementation will follow incorporation into the EEA Agreement. Liechtenstein expects MiFID Quick Fix to be implemented on 01 November 2022. The Netherlands is yet to implement MiFiD Quick Fix.

Changes to the EU View Guidelines:

Czech Republic:

• Third-country firms are no longer required to register with ESMA or establish a branch to provide investment services in the Czech Republic to credit institutions and investment firms where certain reciprocity conditions are met. No notification or application to local regulator is required for a third-country firm to benefit from this local exclusion.

Denmark:

• Following the expiry of the Temporary Permissions Regime (TPR) back at the end of June 2022, UK entities will have to rely on the pre-existing licensing regime that is available to third-countries to provide MiFID investment services/activities to clients in Denmark, subject to satisfaction of an equivalency assessment by the local regulator and fulfilment of other conditions.

France:

• As you may recall, the inter-dealer exemption allows a non-EEA offshore non-licensed entity to avoid the licensing requirements in France when dealing for its own account on a principal-to-principal basis provided it does not provide any other investment services in France. The exemption has been updated to clarify that, in addition to other conditions, the non-EEA offshore non-licensed entity should not provide investment services in France in relation to: (i) transactions on public securities where the transactions are entered into a regulated market in a multi trading system or an organised trading system; and (ii) OTC transactions where the French counterparty is a credit institution or a credit firm acting on own account.
  Greece and Latvia:
• In both Greece and Latvia, the reverse enquiry conditions have been updated to clarify that, without prejudice to intragroup relationships, where an offshore non-licensed entity (including through an entity acting on behalf or having close links with such entity or any other person acting on behalf of such entity), solicits clients or potential clients in the jurisdiction, it will not be deemed to be a service provided at the own exclusive initiative of the client.

Iceland:

• Following a change in law, the guidelines have been updated in relation to the limited availability for a non-EEA entity to obtain a licence without establishing a subsidiary or branch in Iceland. Currently, the position in Iceland of a third country branch, like the London branch, of an EU regulated firm with a pan-European passport, will be the same as for an unlicensed entity.

Liechtenstein:

• This is good news, the Temporary Permissions Regime (TPR) that permitted UK authorised entities to continue providing MiFID investment services/activities to per se professionals and/or eligible counterparties in Liechtenstein (excluding elective professional clients and retail clients), without the establishment of a branch/subsidiary, has now become permanent in the form of a light touch regime. This light touch regime is subject to pre-notification to / confirmation from the local regulator before such services can be undertaken and only applies to UK authorised entities.

Luxembourg:

• As a result of a change in law, Australia and China have been added to the list of third countries considered equivalent in order for non-EEA firms to be able to provide investment services / activities without having to establish a branch. The current list is now: Australia, Canada, China, Hong Kong, Japan, Singapore, Switzerland, the UK and the USA.

Romania

• A new law has been introduced, relaxing the restrictions on MIFID passported entities and aligning local application of MIFID closer to the rest of the EU.
• As a result of this change MIFID passported entities are now allowed to provide/market activities/services on both a fly-in and reach-in basis without establishing a branch in Romania. The circumstances where passported entities must, however, establish a branch are now concerned with such entity having a “permanent presence” in Romania.
• In relation reverse enquiry, an EEA entity may now also respond to a client request on both a fly-in and reach-in basis as a matter of law, which reflects the position for non-EEA entities.

Slovakia:

• The reverse enquiry conditions have been updated to note that responding to a reverse enquiry from any type of investor in relation to unregistered UCITS is permitted and a notification to the local regulator is no longer necessary.

XBTech - Jurisdiction coverage outside EEA:

XBTech can be made available for any of the 140+ jurisdictions covered by navigator. We already have Anguilla, Argentina, Australia, Bahrain, Bermuda, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Dominican Republic, Mexico, New Zealand, Peru and Switzerland available – with more coming online soon. Please contact us if you would like to find out more.

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.