KPMG Regulatory Horizons is a quarterly publication from KPMG's EMA Financial Services Regulatory Insight Centre (RIC), with forward-looking insights and commentary on financial services regulation from the perspective of the EMA region.

As we launch this issue, the European Parliament, Council and Commission have just identified their key legislative priorities for 2022. These include proposals supporting the European Green Deal, a Europe fit for the digital age, an economy that works for people and a new push for European democracy. Sustainability, digital and resilience initiatives will be fundamental to delivering on these objectives. The EBA has also published its latest risk dashboard which shows that asset quality has improved further but that cyber risk remains a source of concern for EU banks.

The European Commission is advancing its Capital Markets Union (CMU) action plan with reviews of major pieces of legislation such as MiFIR, AIFMD and the European Long-Term Investment Funds Regulation (ELTIF). The MiFIR review proposals focus on improving market transparency and structure and will have the greatest impact on firms and venues engaged in wholesale trading markets. Proposed changes to the UCITS Directive and AIFMD cover delegation, liquidity risk management, data reporting for market monitoring purposes and the rules for depositaries. The aim of the changes to the ELTIF regulation is to make the funds more attractive.

Also of concern to wholesale markets is the critical role of Central Counterparty Clearing Houses (CCPs) post-Brexit. Despite confirmation that EU temporary equivalence will be extended, the European Commission is continuing its efforts to re-shore derivative positions with potential cost implications for industry.

The regulatory landscape around digital finance continues to evolve. Noise around Central Bank Digital Currencies (CBDCs) has intensified and, while many jurisdictions are now considering the impacts and development of CBDCs, some are pushing ahead with greater enthusiasm than others. On the infrastructure side, the greatest benefit from crypto innovations for mainstream financial institutions may well prove to lie in the capabilities of the underlying distributed ledger technology rather than in the deployment of crypto-assets.

ESG developments remain a key priority for regulators across the region with policymakers turning their attention to the regulation of sustainable finance in wholesale capital markets. Calls for ESG data and rating providers to be regulated have increased, standards for bond issuers are being debated and developments in carbon markets are being monitored closely.