Financial Services SpeedRead - Germany: 24 June 2024 edition

Welcome to the eighth edition of the Germany specific Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.

Financial Markets

1. EBA: Guidelines and RTS: EBA publishes regulatory products under the Markets in Crypto-Assets Regulation

On 6 June 2024 and 13 June 2024, the EBA published packages of regulatory technical standards (RTS) and guidelines under the Markets in Crypto-Assets Regulation (MiCAR). These products are part of the EBA's ongoing efforts to foster a well-regulated market for asset-referenced and e-money tokens in the EU.

The 6 June 2024 package concerns governance and remuneration. It comprises of the following:

• Guidelines on the minimum content of the governance arrangements for issuers of asset-referenced tokens (ARTs) (Final Report) (EBA/GL/2024/06): These guidelines further specify the governance provisions in MiCAR and clarify the tasks, responsibilities and organisation of both the management body and issuers.
• Draft RTS on the minimum content of the governance arrangements on the remuneration policy under Article 45 of Regulation (EU) 2023/1114 (Final Report) (EBA/RTS/2024/06): These RTS mainly relate to issuers of significant ARTs and electronic money institutions issuing significant e-money tokens. These RTS set out the main governance processes for the adoption and maintenance of the remuneration policy and main elements that the issuer should adopt as part of the remuneration policy.
• Draft RTS specifying the requirements for policies and procedures on conflicts of interest for issuers of ART under Article 32(5) of Regulation (EU) 2023/1114 (Final Report) (EBA/RTS/2024/07): These RTS specify the requirements for conflicts of interest policies and procedures for issuers of ART, as well as the details and methodology for the content of the disclosure.

The 13 June 2024 package concerns prudential matters, namely own funds, liquidity requirements and recovery plans. It comprises of the following:

• Draft RTS on additional own funds requirements and stress testing (Final Report) (EBA/RTS/2024/08): These RTS specify the adjustment of the own funds requirement and minimum features of stress testing programmes of issuers of ARTS and of e-money tokens (EMTs) subject to such requirements.
• Draft RTS to specify the minimum content of liquidity management policy (Final Report) (EBA/RTS/2024/12): These RTS specify the procedure and timeframe for an issuer to adjust the amount of its own funds to 3% of the average amount of the reserve of assets when the relevant issuer is issuing an ART or EMT classified as "significant".
• Draft RTS to specify the highly liquid financial instruments in the reserve of assets (Final Report) (EBA/RTS/2024/11): These RTS specify the financial instruments that can be considered highly liquid and bearing minimal market risk, credit risk and concentration risk.
• Draft RTS further specifying the liquidity requirements (Final Report) (EBA/RTS/2024/10): These RTS specify the liquidity requirements of the reserve of assets under Article 36(4) of Regulation (EU) 2023/1114.
• Draft RTS on the procedure and timeframe to adjust own funds (Final report) (EBA/RTS/2024/09): These RTS consider procedures for identifying, measuring and managing liquidity risk, a contingency policy and mitigation tools as well as minimum aspects of liquidity stress testing.
• Guidelines on recovery plans under MiCAR (Final Report) (EBA/GL/2024/07): These Guidelines specify the format of the recovery plan and the information to be provided.

Banking and Prudential

2. BaFin: Publication: FAQ on Remuneration Regulation for Institutions

On 13 June 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published an FAQ on the Remuneration Regulation for Institutions (Institutsvergütungsverordnung).

The FAQ replace the previous interpretative guidance of BaFin on the Remuneration Regulation for Institutions. Supervised institutions must, among other things, apply the Guidelines of the EBA on sound remuneration policies under Directive 2013/36/EU (EBA/GL/2021/04) directly. The FAQ also cover issues that are not covered by the Guidelines or where there is a question of their proportional implementation.

Insofar as the FAQ provide new facilitations, institutions may apply these immediately. If it is necessary to adjust remuneration systems due to the FAQ, there is a transitional period until 1 January 2025, for implementing the changes.

3. EU Parliament: Legislation: Technical Standards for the Capital Requirements Regulation and Bank Recovery and Resolution Directive

On 7 June 2024, Commission Implementing Regulation (EU) 2024/1618 of 6 June 2024, amending Implementing Regulation (EU) 2021/763 was published in the Official Journal of the EU.
The Regulation contains implementing technical standards on supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities and the total loss absorbency requirement.

The Implementing Regulation comes into force on 27 June 2024 and will apply from 27 December 2024.

4. EBA/ESMA: Discussion Paper: Call for advice on the investment firms prudential framework (EBA/DP/2024/01)

On 3 June 2024, the EBA and ESMA jointly published a discussion paper (EBA/DP/2024/01) on the possible review of the investment firms' prudential framework in the Investment Firms Regulation (EU) 2019/2033 (IFR) and the Investment Firms Directive (EU) 2019/2034 (IFD).

This paper responds to the European Commission's call for advice on the IFD and the IFR which was submitted on 1 February 2024 and aims to gather early stakeholder feedback on the following topics to inform the EBA's and ESMA's response to the European Commission:

• the adequacy of the current prudential requirements;
• an analysis of the existing methodology;
• risks not covered by the current framework;
• the implications of the adoption of the new EU Banking package (CRD VI and CRR 3);
• prudential consolidation and a possible extension to crowdfunding and crypto-assets service providers;
• aspects of remuneration with respect to investment firms AIFMs and UCITS management companies; and
• a short section on the treatment of firms currently non-prudentially regulated and active in commodity markets.

The EBA and ESMA also launched a voluntary data collection relating to the discussion paper.

The deadline for submissions is 3 September 2024. There will also be a public hearing via conference call on 20 June 2024 at 14:00 EST. Interested stakeholders have until 17 June 2024 16:00 EST to register their interest here.

The EBA and ESMA aim to publish a joint final report in response to the Commission's call for advice before December 2024.

Fund Management

No new entries. 

Senior Managers and Governance

No new entries. 

Financial Crime

No new entries. 

Retail Services

5. Council of the EU: Press release: Retail investment package

On 12 June 2024, the Council of the EU published a press release outlining that it has agreed on its position regarding the Retail Investment Package. These measures are specifically aimed to support individual consumers who wish to invest on the EU’s capital markets, by better protecting their investments, providing them with clearer information about investment products and ensuring more transparency and disclosure.

The Retail Investment Package is proposed to consist of:

• a proposed Directive on retail investment protection (referred to as an "Omnibus Directive") which amends MiFID, the Insurance distribution directive, Solvency II, the Undertakings for Collective Investment in Transferable Securities directive and Alternative Investment Fund Managers directive; and
• a proposed Regulation amending the Packaged Retail and Insurance-based Investment Products regulation (1286/2014).

The changes involve amending disclosure rules, introducing the concept of "value for money", addressing potential conflicts of interest due to inducements, addressing misleading marketing, preserving high standards of qualifications for professionals, and enhancing supervisory cooperation to ensure that rules are properly applied across the EU. The package also aims to adapt provisions on regulatory disclosures and make targeted changes to adapt the Key Information Documents.

As the negotiating mandate on the proposed Directive and Regulation has already been agreed, interinstitutional negotiations on the Retail Investment Package may now commence.

6. BaFin: Press release: Mystery Shopping of consumer credits and online advertisement

On 4 June 2024, BaFin published the results of the mystery shopping, it has been conducting with regard to consumer credits and online advertisement of banks. The results revealed both positive aspects and deficiencies.

BaFin identified the following deficiencies concerning consumer credits:

• Almost 80 percent of credit requests were approved, even though half of the test shoppers had rather poor creditworthiness;
• In one third of the test purchases, no financial information was collected from the consumers;
• In about two thirds, the information was collected superficially;
• In some cases, shoppers were offered higher loan amounts than requested.

Regarding online advertisement, BaFin had positive findings, which included that the companies largely acted transparently and fairly in their online advertising efforts. However, there is room for improvement, especially considering the following:

• Few institutions had all information about products and services directly available in their banking apps; often, customers were referred to the website instead;
• Several institutions lacked information on how the sustainability of products advertised as "green" or "sustainable" could be substantiated;
• Some institutes only disclosed in small print that past positive performance is not a guarantee of future results.

This mystery shopping exercise was part of a EU-wide initiative coordinated by ESMA. If any irregularities were found in the investigations of the tested institutions, BaFin conducts supervision meetings and takes further measures as necessary. Finally, BaFin noted that the sample sizes are relatively small and represent only a snapshot in time. Therefore, the results cannot be readily extrapolated to the entire German financial sector.

Digital Finance and Fintech

No new entries. 

Payments

No new entries. 

ESG

7. ESAs: Reports: ESAs publish final greenwashing reports

On 4 June 2024, the European Supervisory Authorities (ESAs) published their final reports on greenwashing in the financial sector.

In their respective reports, the ESAs reiterate the common high-level understanding of greenwashing and that the practice may be misleading to consumers, investors or other market participants. The ESAs stress that financial market participants have a responsibility to provide sustainability information that is fair, clear and not misleading.

The ESMA Final Report on Greenwashing (ESMA36-287652198-2699) considers, among other things, the role of supervision in mitigating greenwashing risks and provides a forward looking view (with recommendations) of how supervision could be gradually enhanced in the near future.

The EBA Final Report on Greenwashing Monitoring and Supervision (EBA/REP/2024/09) provides an overview of greenwashing risk in the banking sector and its impact on banks, investment firms and payment service providers, with a focus on the changes during the last year. It also provides recommendations to institutions, supervisors, and policymakers.

The EIOPA Final Report (Advice to the European Commission on greenwashing risks and the supervision of sustainable finance policies (EIOPA-BoS-24-159)) sets out key proposals aimed at enhancing the supervision of greenwashing and at improving the sustainable finance regulatory framework. Complementing the Final Report, EIOPA also published its Opinion on sustainability claims and greenwashing in the insurance and pensions sectors, which sets out the four key principles that national supervisors should consider when probing undertakings’ sustainability claims.

Other

8. ECB: Consultation Paper: ECB consults on draft guidance on outsourcing to cloud service providers

On 3 June 2024, the European Central Bank published a consultation paper on a draft guide for banks on outsourcing cloud services to cloud service providers (CSPs).

The ECB's Guide applies to banks that are supervised directly by the ECB, but will also be relevant to CSPs and other financial entities subject to DORA.

The ECB states that its Guide:

• should be read in conjunction with the incoming DORA regulatory framework and the EBA Guidelines on outsourcing arrangements; and
• does not lay down legally binding requirements and should not be construed as introducing new rules or requirements.

Importantly, the ECB helpfully confirms that DORA takes precedence and that the principle of proportionality applies to the ECB's expectations under the Guide.

For more information, please see our full briefing here.

9. BMF: Publication: Draft bill for the Transfer of Funds from the Restructuring Fund to the Financial Market Stabilization Fund

On 10 June 2024, the German Federal Ministry of Finance (Bundesfinanzministerium, BMF) published a draft bill for the transfer of funds from the Restructuring Fund (Restrukturierungsfonds, RSF) to the Financial Market Stabilization Fund (Finanzmarktstabilisierungsfonds, FMS).

Starting in 2015, credit institution of the Banking Union were required to pay contributions to the Single Resolution Fund, the emergency fund of the EU. However, Germany had already been collecting a bank levy (Bankenabgabe) since 2011. The old funds from this period are still held in the national RSF and managed by the German Central Bank (Deutsche Bundesbank). The FMS was created after the 2008 financial crisis to stabilize the banking sector, which had accumulated a 21.5 billion euro deficit by the end of 2022. The transfer of the old funds from the RSF to the FMS reduces the current deficit of the latter by about 2.3 billion euros. With the draft, the BMF aims to significantly lower future financial burdens for the Federal Government and Federal States resulting from the financial market crisis. Furthermore, transferring the funds instead of paying them back to the credit institutions, partially involves them in the costs of financial market stabilization incurred by the Federal Government and Federal States due to the financial market crisis.