8 April 2016 Mifid II

The Weekly Report from Brussels, provided by the European Affairs team at the City of London, provides an update on key developments relating to financial services in the EU. 8 April 2016 Welcome to the Weekly Report, prepared by the City of London European Affairs team. This week includes: MiFID II Prospectus Directive Competition Commissioner Hearing In other news Upcoming City of London events Upcoming EU Institutions events and consultations More information about the work of the City of London European Affairs team can be found here. MiFID II On 7 April, Members of the Economic and Monetary Affairs (ECON) Committee in the European Parliament voted to approve the European Commission’s proposal to delay the implementation of the revised Markets in Financial Instruments Directive (MiFID II). Therevision of MiFID II is intended to underpin a new era of post-crisis regulation in financial markets. In February this year, the Commission proposed delaying implementation until January 2018 in order to allow firms to build data-reporting systems. Markus Ferber MEP (EPP, DE), the rapporteur for the legislation, welcomed the delay as he said it would “give member states, supervisors and market participants enough time to transpose and implement new provisions”. MEPs from other political groups agreed with Mr Ferber’s sentiment arguing that the legislation needed work and that delaying implementation was inline the spirit of achieving better regulation. Neena Gill MEP (S&D, UK) added however that the Commission must take on board the Parliament’s concerns in order avoid further delay to MiFID. The ECON Committee also voted to pass three amendments to the legislation. The first introduces a waiver for package transactions from the pre-trade transparency regime; second, a clarification on the exemption on own-account trading and thirdly, an exemption for securities financing transactions from the MiFID II transparency rules. Prospectus Directive Background On 7 April, the European Parliament’s ECON Committee debated the legislative proposal to modernise the Prospectus Directive published by the Commission in November 2015. The Prospectus Directive regulates the information which companies must provide (i.e. their prospectus) to potential investors when issuing securities. Prospectuses include information about the security and its issuer for investors to make an informed investment decision. Once approved by a Member State supervisor, the prospectus enables an issuer to raise capital across all EU capital markets simultaneously thanks to the "single passport" principle. The proposed revision is aimed at simplifying the work for issuers, in particular for secondary issuances and frequent issuers, in order to make it easier for companies to access capital markets. It also introduces a requirement for investors to provide a retail investor- friendly "key information"–type summary. Latest developments The rapporteur for the legislation, Philippe De Backer MEP (ALDE, BE), welcomed the Commission’s proposal which he thought was an important step in the creation of the Capital Markets Union (CMU). He acknowledged that the revision of the Prospectus Directive was important for investor protection and allowing companies to attract capital. He argued that it was important to move towards regulatory convergence on prospectuses and push national regulators to adopt the same standards when approving prospectuses. He thought it was key that issuers provide concise and understandable information to investors so that retail/non-skilled investors can make informed decisions. He proposed that the suggested threshold at which prospectuses need to be issued, be raised, in order to reduce the regulatory burden on companies. Representatives from the two largest political parties also welcomed the Commission’s proposals. Tom Vandenkendelaere MEP (EPP, BE) was keen to harmonise the rules and to reduce the regulatory burden for SMEs. Neena Gill MEP (S&D, UK) shared the same objectives to make it make it easier, faster and cheaper for companies to raise capital and to ensure investor and consumer interests are properly protected. She thought however that the Commission’s proposals lacked ambition. She did not have problem with the rapporteur’s suggestion to raise the thresholds at which prospectuses are issued. Beatrix Von Storch MEP (ECR, DE) did not like the proposal for the inclusion of a “summary” of key information. She argued that small investors would not read it and large investors would not need it. Miguel Urbán Crespo MEP (GUE/NGL, ES) was strongly opposed to the proposal to raise the threshold for prospectuses. He argued it was an attempt at deregulation and would make the market more opaque. Ernest Urtasun MEP (Greens, ES) was also opposed to raising thresholds. Next steps The deadline for tabling amendments is 19 April 2016. The legislation will then be voted on in committee and will then be sent for a vote in plenary. Competition Commissioner Hearing Background On 4 April, the European Commissioner for Competition, Margrethe Vestager, addressed the European Parliament’s Special Committee on Tax Rulings (TAXE2). She updated MEPs on the Commission’s work scrutinising tax agreements for potential state aid violations and the upcoming proposal on public country-by-country reporting (CBCR). Review of tax rulings The Commission is undertaking a systematic review of tax rulings given by tax authorities in all 28 Member States. In the last two years, the Commission has reviewed over 1,000 individual tax rulings, with the focus on scrutinising rulings given to large corporations and so called “national champions”. The thought is that “national champions” are more likely to receive favourable deals from national governments. 600 of the tax rulings examined came from the ‘LuxLeak’ disclosures. Vestager told MEPs that most tax rulings did not raise state aid concerns and followed the basic principle that profit should be taxed where it is generated. However there were examples “which are much more worrying” and could favour a particular company or particular type of companies. The Commission will publish a working paper outlining what they have learned from their examination of the 1,000 tax rulings in July. State aid violations Vestager informed MEPs that the Commission had found that Fiat and Starbucks received illegal state aid in the form of selective tax advantages in Luxembourg and the Netherlands respectively. Luxembourg has now recovered the incompatible state aid from Fiat. In December 2015 the Commission launched an investigation into whether Luxembourg gave McDonalds an advantageous tax arrangement. In January 2016, the Commission found that selective tax advantages granted by Belgium under its "excess profit" tax scheme were also illegal under EU state aid rules. In the Belgian case, Vestager told MEPs that around €700m is in the process of from being recovered from 30 companies. Brian Hayes MEP (EPP, IE) asked Vestager when a decision would be taken on the tax arrangements of Apple in Ireland. She would not give a timeline for when the Commission would take a decision as new information provided by the Irish authorities had raised more questions. Public country-by-country reporting (CBCR) The Commission will present the results of its impact assessment on public CBCR next week. The proposals will set out what information multinationals (MNEs) will have to publicly disclose on their country-by-country operations. On 8 March, member states reached a political agreement on non-public CBCR and the automatic exchange of information between tax authorities. It is expected that the Commission will propose public CBCR for MNEs on their EU operations, but that rules will only require public disclosure of aggregate data for non-EU operations. Perhaps pre-empting next week’s proposals, Vestager said it was important not to place too much regulatory burden on companies, and that European institutions should consider their jurisdiction. She also noted however that it was important for the entire culture of taxation to change going forward. Jeppe Kofod MEP (S&D, DK) argued it was imperative to increase transparency in order to shed light on illegal activity. He wants public CBCR apply to both EU and non-EU operations in other to shed light on how MNEs avoid tax. In other news The TAXE2 Committee of the European Parliament held hearings with representatives from Deutsche Bank and the Royal Bank of Scotland. It follows exchanges with six other European banks on 21 March. The ECON committee of the European Parliament voted to approve legislation onbenchmarks in financial instruments and financial contracts. The ECB released its 2015 Annual Report and the Vice President of the ECB, Vítor Constâncio, held and exchange of views with the ECON Committee. The exchange of views on EDIS, scheduled for 7 April, was postponed as MEPs ran out of time to discuss the legislation and a number of shadow rapporteurs for the legislation were absent. Upcoming City of London events 11 April: The City of London Corporation is hosting the Innovate Finance Global Summit. Upcoming EU Institutions events and consultations 14 April: European Commission deadline for consultation on non-financial reporting guidelines. 15 April: EBA deadline for consultation on reporting financial information using GAAP. 20 April: EBA deadline for consultation on guidelines on implicit support for securitisation transactions. 22 April: ESMA deadline for consultation on draft RTS and ITS under the securities financing transaction regulation. 22 April: EBA deadline for consultation on guidelines on corrections to modified duration for debt instruments. 26 April: EIOPA deadline for consultation on the development of an EU Single Market for personal pension products (PPP). 28 April: EIOPA deadline for consultation on facilitating an effective dialogue between competent authorities supervising insurance undertakings and statutory auditor(s) and the audit firm(s). 10 May: European Commission deadline for consultation on improving double taxation dispute resolution mechanisms City of London Research The City of London produces regular research on EU Financial Services which can be accessed here.

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