European Regulatory Radar

Welcome to the latest edition of European Regulatory Radar 

The new issue of European Regulatory Radar brings you the latest updates impacting financial services providers in the region. Complementing the UK Regulatory Radar series, European Regulatory Radar provides an overview of the wider economic and political environment, progress across the regulatory agenda and deep-dive articles on some of the most important regulatory developments.  

The European Supervisory Authorities (the EBA, EIOPA, ESMA) have now laid out their individual work programmes for 2024 as well as a joint programme — each addressing themes largely as expected.  

ESMA's priorities include work arising from the review of multiple directives (including MiFID II/MiFIR, UCITS, AIFMD and CSDR), further developing the SFDR, delivering a final report on greenwashing and finalising technical standards under MiCA and DORA. From 2025, ESMA will also add a new strategic supervisory priority focusing on cyber risk and digital resilience.

The EBA will concentrate on implementation of the EU banking package (CRR3/CRD6) and EBA Data Strategy, developing oversight and supervisory capacity for DORA and MiCA and managing the transition to the new AML / CFT framework. The ECB is due to publish its SSM priorities for 2024-2026 imminently. 

EIOPA will focus on integrating ESG risks into the prudential framework, implementing DORA and the ESAP, and the Solvency II review. 

November marked twelve months since the ESRB's first ever “general warning” about financial stability risks and presents an opportunity for national supervisors to take stock of the ecosystem. Risk levels for the EU insurance sector have increased since our last edition — with exposures to macro, market and digitalisation now categorised as high risk in EIOPA's Dashboard. The ECB has also noted that the financial stability outlook remains fragile as tighter financial conditions spread to the real economy in an environment of weak growth, high inflation and heightened geopolitical tensions.  

In a potential boost for regulatory cooperation, the first meeting of the new EU/UK Financial Regulatory Forum took place in October, following the signing of a memorandum of understanding (MoU) in May. Both sides discussed practicalities for future collaboration under the arrangement and provided updates on their respective agendas.

In the banking sector, the EBA has published non-binding recommendations on enhancing the Pillar 1 framework to capture environmental and social risks. These are to be considered alongside ongoing amendments to the CRR — noting that the compromise text for CRR and CRD has just been published and will now be voted upon. The EBA has published its second mandatory exercise on Basel III full implementation which indicates that European banks' minimum Tier 1 capital requirement would increase by 9% in 2028, driven mainly by the output floor and credit risk. And the EC has adopted a mandate to start negotiations with Parliament on the `Daisy Chain' proposal (a targeted amendment to BRRD and the SRMR on the treatment of internal MREL). 

In insurance, EIOPA has now submitted to the EC its technical advice on the review of the IORP II Directive (which regulates the activities and supervision of institutions for occupational retirement provisions). EIOPA has also released for consultation a draft opinion on the supervision of captive (re)insurance undertakings.

In capital markets, ESMA published a Call for Evidence (and parallel consultation with central banks) on shortening the settlement cycle. It also coordinated the participation of the majority of EU CCPs in a global fire-drill. The review of CSDR has been agreed — introducing a simpler passporting regime between Member States and confirming that mandatory buy-ins can only be introduced as a measure of last resort. The regulation creating the European Single Access Point (ESAP) has also been agreed, establishing a platform (from summer 2027) that will host financial and non-financial information about EU companies and EU investment products.

For asset managers, the ESAs published their second annual review of voluntary disclosures of principal adverse impacts made under the SFDR — showing an overall improvement from the prior year. The Commission is continuing its fundamental review of the SFDR, and separately the ESAs have proposed changes to the Level 2 requirements. More broadly, the review of the AIFMD is almost complete, as the Council of the EU published the final compromise text with amendments to the AIFMD and UCITS Directive — this is now subject to formal approval. Separately, fund managers wishing to launch ELTIFs under the ELTIF 2.0 framework will be able to do so once it takes effect on 10 January 2024. EU fund managers will also be interested in tracking the FCA’s Overseas Funds Regime consultation that will determine the information they would need to provide in the event of any equivalence decisions by HMT.

The EC has published an amended draft act on the specification of criteria for critical ICT third-party service providers (CTPPs) and determining oversight fees — following a Call for Advice on two delegated acts under DORA. Also relating to DORA, the EBA has launched a consultation on the second package of draft RTS, ITS and guidelines, covering topics such as incident reporting, penetration testing and oversight cooperation. 

The EBA and ESMA continue to consult on standards and guidelines to support the Markets in Cryptoassets Act (MiCA). ESMA simultaneously called on Member States to begin designating relevant regulators and to consider limiting the optional grand-fathering period available within the MiCA framework. Provisional agreement has now been reached on the EU AI Act — meaning that work can continue at the technical level in the coming weeks to finalise the details of the new regulation.

2024 will be an election year it the EU, resulting in changes to the composition of the European Parliament and Commission. The EU authorities therefore seem keen to progress files as much as possible now, with regulatory activity likely to slow as we approach the middle of next year. 

The articles below provide more detailed insights on some of the most significant developments. Click on the links to read more: