Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant January/February 2017 Q&As below. PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Transparency:
    – Systematic internaliser regime
  2. Market Structure:
    – Direct Electronic Access (DEA) and algorithmic trading
    – Multilateral systems
  3. Data Reporting:
    – Date and time of the request of admission and admission
    – Instrument identification code and Underlying instrument code
    – Maturity Date
    – Classification of Financial Instruments (CFI) and Financial Instrument Short  Name (FISN)
    – Request for admission to trading by issuer
    – Base Point Spread of the index/benchmark of a floating rate bond

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR. Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

New Milestone in FinTech regulation – public consultation on the revision of banking regulation in Switzerland and Liechtenstein

Both the Swiss Federal Council and the Government of the Principality of Liechtenstein have recently published a public consultation documentation on amendments regarding its respective banking regulation framework. The purpose of the revision is to boost FinTech business models. Accordingly, the drafts suggest, inter alia, creating new license categories. Overall, the expected outcome will be a substantial deregulation making both jurisdictions more attractive as FinTech hubs.

Developments in Switzerland
On February 1, 2017, the federal Council has initiated public consultation on the revision of the Banking Act (“BA”) and the Banking Ordinance (“BO”). The purpose of the revision is to create an appropriate regulation for FinTech companies operating outside of the traditional financial sector taking into account the specific risk potential of the respective business model. Accordingly, the draft proposes a deregulation containing the following three elements:

  • An exemption for settlement accounts will be created. This will allow companies, inter alia, to hold funds in a settlement account during 60 days without the operation of such account being deemed an activity subject to licensing under the BA.
  • An innovation space shall be created allowing companies to conduct bank-like activities without having to obtain a bank license and with the permission to hold public deposits in the amount of up to CHF 1 Mio.
  • Finally, companies not active in the lending business holding public deposits of not more than CHF 100 Mio. can be granted a bank license with facilitated licensing requirements.

The consultation period shall last until May 8, 2017.

Developments in Liechtenstein
In the Principality of Liechtenstein, similar regulatory modifications were initiated. On January 31, 2017, the government has initiated a public consultation on the revision of the Bank Act and the Financial Markets Supervisory Act. Due to the revised regulation, the Financial Markets Authority shall have the discretion to adjust and modify the minimum capital of banks and investment firms based on the risk profile of the respective business model. With this initiative, the regulatory framework shall become more attractive in particular for FinTech companies. As the amendments will be in line with the standards provided by the European regulation, the market access within the European Economic Area (EEA) will be ensured. The consultation period shall last until March 2017.

Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Simon Schären
Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 14 63
simon.schaeren@ch.pwc.com

Latest Level 3 ESMA Q&As related to MiFID II/MiFIR

ESMA was very diligent in December and published an updated version of the Level 3 paper where Q&As are covered to several topics. Due to the specification and clarification purposes of the Level 3 paper, this should help you during the implementation phase and could clarify open questions. Please find the relevant December 2016 Q&As below.

PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Investor Protection
  2. Commodity Derivatives
  3. Transparency
  4. Market Structure
  5. Data Reporting

Read more…

 

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR.

Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 23 25
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Swiss Council of States to resolve upon new Financial Services Act (FinSA) and Financial Institutions Act (FinIA)

On 14 December 2016 the Council of States (Ständerat) passed the bill relating to the new Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) thereby largely adapting the proposal made by its Commission for economy and taxes (WAK-S). The bill in its current state contains some significant changes made to the original draft of the bill issued by the Federal Council (Bundesrat) in November 2015. The National Council (Nationalrat) will now take over and should be debating the bill in its spring session in 2017. Given the momentum the legislative process has now gained due to the surprisingly speedy resolution of the Council of States, the bill might be finalized in the course of 2017 and eventually come into force in early 2018. In expectation of a soon-to-be finalization of the bill, affected financial services providers and institutions should now start to engage in serious preparation and implementation efforts.

Read more…

 

Please call us for a free consultation.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com

Jean-Claude Spillmann
Senior Manager Legal FS Regulatory &
Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Simon Schären 
Manager Legal FS Regulatory &
Compliance Services
+41 58 792 14 63
simon.schären@ch.pwc.com

Final standards of MiFID II exception for commodity traders

Does your firm trade in commodities derivatives? If so, the publication of the final standards regarding the exemption of ancillary activities and the position limits regime under MiFID II is of importance to you.

MiFID II/MiFIR will generally require that any company trading in commodities derivatives on its own account or on behalf of third parties will need a license as an investment firm as of 3 January 2018. This rule will also affect commodities trading firms domiciled in Switzerland to the extent that they trade in commodities derivatives listed on an exchange domiciled in the EU or conduct OTC trades with a counterparty domiciled in the EU.

There are, however, certain exemptions available to this general license requirement. The most prominent of these exemptions is the ancillary activity exemption. The final technical standards for the criteria to establish whether an activity is considered to be ancillary to the main business under MiFID II/MiFIR were published by the European Commission yesterday. Ancillary activity exemption is granted if the following three thresholds are not exceeded:

        • Overall market threshold: The group’s notional value in speculative positions in the asset classes metals, oil and oil products, coal, gas, power, agricultural products and other products, when compared to the overall market trading activity in each of these asset classes, does not exceed certain thresholds (4% for metals, 3% for oil and oil products, 10% for coal, 3% for gas, 6% for power, 4% for agricultural products, 15% for other products, and 20% for emission allowances).
        • Main business threshold: This test is now comprised of two subtests. The first is still the ratio between the company’s speculative and overall trading activity. A value below 10% means that the test has been passed, a value between 10% and 50% decreases the thresholds mentioned in the overall market threshold test by 50%, and a value above 50% decreases these thresholds by 80%.
        • New – capital employed test: the third test is passed when the estimated capital employed for carrying out the activities (15% of the net position in addition to 3% of the gross position, multiplied by the net price of the derivative) is not more than 10% of the capital employed (total assets of the company minus short-term debt) at company level for carrying out the main business activities.

The European Commission has also published the final technical standards on the position limits on the size of a net position which a person can hold in exchange-traded commodity derivatives and economically equivalent OTC contracts. In other words, there will be position limits for each commodity derivative in each commodity class.

What does this mean for firms trading in commodities derivatives?
If you have not done so already, we recommend starting your MiFID II/MiFIR project now. Compliance with MiFID II/MiFIR will result in (material) changes to your organisation. Synergies can be gained by combining the MiFID II/MiFIR project with projects related to other regulations that are already in force or will soon come into force (such as MAR, FMIA and EU benchmark regulations).

We have had the great fortune to assist many large and smaller commodities trading groups in becoming MiFID II/MiFIR compliant, and we would be delighted to share this wealth of experience with you.

For your free consultation, please contact:

Dr Günther Dobrauz MBA
Partner
guenther.dobrauz@ch.pwc.com
+41 79 894 58 73

Dr Martin Liebi LL.M.
Senior Manager
martin.liebi@ch.pwc.com
+41 76 341 65 43

More clarity on the audit requirements for non-FINMA supervised companies (Non-Financial Counterparties) under the Swiss Financial Market Infrastructure Act

As of the 1st of January 2017, Non-Financial Counterparties will already start being audited on their compliance with the provisions of the Swiss Financial Market Infrastructure Act (FinfraG/FMIA). Expert Suisse, the professional Swiss association of auditors, has recently issued guidelines (hereinafter “Guidelines”) on the audit of Non-Financial Counterparties, meaning entities that are not supervised by FINMA and that are entered in the commercial register (hereinafter “Non-Financial Counterparty”), under the Swiss Financial Market Infrastructure Act (FinfraG/FMIA). The guidelines apply only to small Non-Financial Counterparties, but not to large Non-Financial Counterparties. The OTC-derivatives positions subject to FinfraG/FMIA (any derivative subject to FinfraG/FMIA, hereinafter “Derivative”) of a small Non-Financial Counterparty do not exceed the threshold of CHF 1.1 billion in gross notional value in the case of equity, credit, or interest rate derivatives, and do not exceed the threshold of CHF 3.3 billion in gross notional value (hereinafter “Threshold”) for commodities and other derivatives. Pension funds are subject to neither guideline.

Read more…

 

Please call us for a free consultation.

Günther Dobrauz
Partner
Leader Legal FS Regulatory and Compliance Services
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com

Martin Liebi
TLS Senior Manager
Legal FS Regulatory and Compliance Services l Head Capital Markets
+41 58 792 28 86
martin.liebi@ch.pwc.com

Stefan Wüeest
Assurance Director
+41 58 792 59 51
stefan.wueest@ch.pwc.com

Silvan Thoma
TLS Senior
+41 58 792 18 17
silvan.thoma@ch.pwc.com

Swiss Federal Council to reduce barriers to market entry for fintech firms

The Federal Council (FC) today published a strategy paper that outlines a “three-step plan” to adjust the current financial regulatory framework in Switzerland to the business reality of the fintech industry. According to the FC, the easing of the regulatory framework shall substantially reduce barriers to market entry for providers in the fintech area. Furthermore, the FC instructed the Federal Department of Finance (FDF) to prepare a consultation draft in order to implement the proposed steps, thereby particularly amending the Banking Act (BA) and the Banking Ordinance (BO).

This initiative by the FC is in line with and complements many recent actions taken by various Swiss regulators, including the Financial Markets Supervisory Authority (FINMA), to improve the standing of the Swiss fintech hub in the international competition for modern and attractive regulatory environments.

Read the full newsletter here.

 

For further information, please contact the
contacts listed below:

Günther Dobrauz
Partner
Leader Legal FS Regulatory and Compliance Services
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com


Simon Schären

TLS Manager
Legal FS Regulatory and Compliance Services
+41 58 792 14 63
simon.schaeren@ch.pwc.com

Out of the shadow into the light: A new set of rules for securities financing transactions and collateral – The SFTR

Currently the European Securities and Markets Authority (ESMA) is inviting responses to specific questions listed in draft Regulatory Standards (RTS) and draft Technical Standards (ITS) under SFTR, and amendments to related EMIR RTS, all of which is published on the ESMA website. The responses must be submitted online to ESMA by 30 November 2016.

On 4 October 2016 ESMA has issued a report on securities financing transactions, leverage and pro-cyclicality in the EU’s financial markets. ESMA’s report assesses whether the use of SFTs leads to the build-up of leverage which is not yet addressed by existing regulation, how to deal with such build-up, and whether there is a need to take further measures to reduce its pro-cyclicality.

ESMA’s report was prepared in cooperation with the European Banking Authority and the European Systemic Risk Board. The report recommends to:

  • introduce the Financial Stability Board’s (FSB) qualitative standards in the methodology used to calculate haircuts
  • address the pro-cyclicality of collateral haircuts in central counterparties in the context of the European Market Infrastructure Regulation (EMIR) review
  • assess the possible extension of the FSB’s scope for numerical haircut floors, and the calibration of these floors using SFTR data which will become available in 2018
  • assess pro-cyclicality and the potential need for further policy tools once sufficient data becomes available

In order to be best prepared to cope with the upcoming challenges, we would like to shed some light on SFTR and help you understand the next steps in its implementation.

Read the full newsletter here.

For further information, please contact the
contacts listed below:

Dobrauz_Guenther_54048_05


Günther Dobrauz
Partner
Leader Legal FS Regulatory and Compliance Services
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com

 

Liebi_Martin_58372


Martin Liebi

Senior Manager | Legal FS Regulatory and Compliance Services
+41 58 792 28 86
martin.liebi@ch.pwc.com

 

Taschner_Michael_59114


Michael Taschner
Senior Manager | Legal FS Regulatory and Compliance Services
+41 58 792 10 87
michael.taschner@ch.pwc.com

 

 

Sahin_Orkan_58434 (2)
Orkan Sahin

Senior | Legal FS Regulatory and Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com

Status Quo of Switzerland’s Journey towards an AIFMD passport

A few days ago, Liechtenstein announced that after a rather significant delay it is finally able to offer its Alternative Investment Fund Managers (AIFMs) and their Alternative Investment Funds (AIFs) access to the EU passport system provided by the EU Alternative Investment Fund Managers Directive (AIFMD). Where does Switzerland stand in this regard?

As a non-EU country, Switzerland can only hope to gain competitive third country access based on regulatory equivalence. In recognition of this principle, Switzerland has made great efforts to align its relevant regulatory framework with the new rules created by the AIFMD by partially revising its Collective Investment Schemes Act (CISA) and associated ordinances.

Last year, the European Securities and Markets Authority (ESMA) evaluated a number of countries (including Switzerland) to form an opinion as to whether the AIFMD passport should be extended to these countries as required by the AIFMD. In July 2015, ESMA published its Advice on the application of the AIFMD passport in six non-EU countries (Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the USA). In this document, ESMA finds no major obstacles for the cases of Switzerland, Jersey and Guernsey. But rather than at least grant the passport to these three countries, ESMA was tasked with assessing an additional six countries to determine whether there are significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk which would impede the utilisation of the AIFMD passport.

On 19 July 2016, ESMA published a second opinion on the extension of the AIFMD passport to non-EU countries. In it, ESMA finds, in particular, that there are only minor obstacles impeding the application of the AIFMD passport in Canada, Guernsey, Japan, Jersey and Switzerland. Additional comments and qualifications were provided with respect to Hong Kong, Singapore, Australia and the USA. For Bermuda and the Cayman Islands, ESMA was unable to provide definitive advice as these countries are currently in the process of implementing new regulatory regimes. Similarly, ESMA found it difficult to assess the Isle of Man, for currently there is no AIFMD style regime in place there.

ESMA’s Advice will now be considered by the European Commission, Parliament and Council, as required by the AIFMD. Therefore, in essence Switzerland is still waiting to gain access to the EU-AIFMD passport for its AIFMs, which would grant them the ability to offer their services and products competitively across the harmonised EU market. But things are clearly moving forward, and seemingly in the right direction, which is good news for many Swiss players. The AIFMD passport has become even more important to many of these entities following the Brexit vote, for up until now they had relied on the UK for access into the EU.

The Esma advice can be found here.

 

Please do not hesitate to contact us if you require further guidance or have questions on any of these topics.

 

AIFM and AIF Pass for Liechtenstein

The EU Directive on Alternative Investment Fund Managers (AIFMD) is undoubtedly one of the most important regulations in recent years and has made a lasting impression on the industry it concerns.

The Principality of Liechtenstein anticipated this development in its earliest stages and not only promptly implemented these new provisions into its national law but also seized the opportunity to provide the market with a differentiated product and offer for institutions.

According to information from the Liechtenstein government, the EEA Joint Committee has also adopted the so-called AIFMD into the EEA Agreement. This means that beginning 1 October 2016, Liechtenstein alternative investment funds (AIFs) and alternative investment fund managers (AIFMs) have efficient and equal access via the so-called passport system to the EEA Internal Market, or to the 28 EU member states and the EEA/EFTA states Norway and Iceland.

Hitherto, Undertakings for Collective Investment in Transferable Securities (UCITS) could already be sold within the European Internal Market from Liechtenstein. Beginning 1 October 2016, this authorization also extends to AIFs.

With the successful adoption of the AIFMD, Liechtenstein now enjoys the same possibilities as EU member states of accessing both UCITS and AIFs and is, thanks to its internationally-oriented activities and unique advantages vis-à-vis other locations in Europe for financial institutions from non-EEA states, an ideal gateway to the European market. Even companies from EU countries are keen to benefit from the outstanding conditions offered by Liechtenstein, and many have already created funds in accordance with Liechtenstein law, taking advantage of Liechtenstein’s quick and efficient licensing process, attractive tax system for funds and corporations, high level of investor protection, well-funded and secure banks and simplified interaction between investment companies, service providers and supervision agencies.

Contact:

Dr. Günther Dobrauz
Partner
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com