Financial Services SpeedRead - Germany: 19 June 2024 edition

Welcome to the seventh 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. ESMA: Statement: Good practices in relation to pre-close calls

On 29 May 2024, the European Securities and Markets Authority (ESMA) published a statement outlining good practices for issuers in relation to "pre-close calls" in order to minimise the risk of such calls causing volatility in share markets.

In particular, ESMA notes that it considers that "pre-close calls" carry the risk of inadvertent unlawful disclosure of inside information, particularly given the lack of publicity of these events and the absence of records as to what was presented. ESMA has subsequently reminded issuers that public disclosure of inside information should only take place in accordance with the Market Abuse Regulation (MAR) and that only non-inside information should be shared during these calls.

ESMA have also listed several good practices for issuers which it considers may help mitigate the risk of unlawful disclosure. This includes that issuers could:

• prior to a “pre-close call”, carry out a thorough assessment of the information they intend to disclose;
• publicly disclose upcoming “pre-close calls” with sufficient notice highlighting the details, date, place, topics to be discussed, and intended participants;
• make the material and documents used during “pre-close calls” simultaneously available on their website;
• record the “pre-close calls” and make the recordings available to national competent authorities (NCAs) upon request; and
• keep records of the information disclosed.

2. BaFin: Publication: General administrative act on investment firm remuneration notifications

On 27 May 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published a general administrative act on investment firm remuneration notifications (Allgemeinverfügung zu Vergütungsanzeigen für Wertpapierinstitute) (General Administrative Act).

With the revision, BaFin is aligning with the following guidelines of the European Banking Authority (EBA):

• Guidelines on the benchmarking exercises on remuneration practices, the gender pay gap and approved higher ratios under Directive 2013/36/EU (EBA/GL/2022/06), which apply to large investment firms;
• Guidelines on the benchmarking exercises on remuneration practices and the gender pay gap under Directive (EU) 2019/2034 (EBA/GL/2022/07), which apply to medium-sized investment firms;
• Guidelines on the data collection exercises regarding high earners under Directive 2013/36/EU and under Directive (EU) 2019/2034 (EBA/GL/2022/08), which apply to large and medium-sized investment firms.

Small investment firms are not required to submit notifications according the General Administrative Act. Large and medium-sized investment firms were required to submit the notifications to BaFin by 15 June 2024 in XBRL format.

3. On ESMA: Final Report: On the 2023 Common Supervisory Action and Mystery Shopping Exercise on marketing

On 27 May 2024, ESMA published its final report on the 2023 Common Supervisory Action (CSA) with NCAs and accompanying Mystery Shopping Exercise (MSE) on the application of marketing disclosures under MiFID.

The final report sets out ESMA's findings following its assessment of the content of firm's marketing communications and its request of NCAs to assess firms' organisation and procedures for marketing communications, including in respect of sustainability and the use of third parties. It identifies a number of key areas for improvement, such as:

• the need for marketing communications to be clearly identifiable and contain a balanced and clear presentation of both risks and benefits;
• the need for adequate approval and review processes for marketing communications;
• ensuring compliance with legal requirements on the part of distributors for all marketing communications;
• implementation of adequate record-keeping measures for all marketing material, including social media posts; and
• involvement of control functions and senior management in internal processes and procedures related to the development, design and oversight of marketing materials.

Both the CSA and MSE have also been used to gather evidence on the topic of greenwashing.

ESMA has noted that it will maintain communication with NCAs on this topic and liaise on their planned follow-up actions. ESMA will also assess whether there may be a use for supervisory convergence tools in helping build a stronger supervisory culture across the EU.

4. ESMA: Consultation Paper: Amendments to certain technical standards for commodity derivatives

On 23 May 2024, ESMA published a consultation paper relating to proposed changes to the rules for position management controls and position reporting, which are required following the publication in the Official Journal of Directive (EU) 2024/790 amending MiFID II, which made changes to a number of provisions relating to commodity derivatives.

The consultation makes various proposals in respect of the regulatory technical standards (RTS) on position management controls, the implementing technical standards (ITS) on position reporting, and on the provisions relating to position reporting in Commission Delegated Regulation (EU) 2017/565. This includes in respect of the extension of position management controls to emission allowances derivatives, the exclusion of emission allowances from position reporting, and the introduction of an additional weekly position report for trading venues where options are traded.

Comments on the proposals must be submitted by 21 August. After reviewing the feedback, ESMA will publish a final report towards the end of 2024.

5. ESMA: Consultation: MiFIR Consultation Package (CTPs and DRSPs)

On 23 May 2024, ESMA published a consultation package on draft technical standards relating to consolidated tape providers (CTPs) and data reporting service providers (DRSPs) under Regulation 2024/791, which amends MiFID to enhance data transparency, remove obstacles to the emergence of consolidated tapes, optimise the trading obligations and prohibit receiving payment for order flow.
The ESMA consultation package specifically seeks stakeholder feedback on the following draft technical standards:

• RTS on input and output data requirements of CTPs;
• RTS on the revenue redistribution scheme for the equity CTP;
• RTS on the synchronisation of business clocks;
• RTS and ITS on the authorisation and organisational requirements for DRSPs, including amending existing RTS 13 and the related ITS so they only apply to approved publication arrangements and approved reporting mechanisms, as well as introducing a new RTS and related ITS for the authorisation of CTPs.

The paper also seeks feedback on ESMA's initial reflections on the specification of the assessment criteria for the CTP selection procedure.

Feedback on the consultation package is due by 28 August 2024. ESMA has confirmed that it will then prepare a final report and submit the final technical standards to the European Commission by the legislative deadline of 29 December 2024. It will also publish a feedback statement on the specification of the assessment criteria for the CTP selection procedure by the end of 2024.

6. ESMA: Consultation: MiFIR Review Consultation Package (Transparency, reasonable commercial basis and reference data)

On 21 May 2024, ESMA published a consultation package related to the review of RTS 2 on transparency for bonds, structured finance products and emission allowances, the draft RTS relating to the availability of information on a reasonable commercial basis, and the review of RTS 23 on the supply of reference data under MiFIR.

The proposals in the consultation package are aimed at enhancing the information available to stakeholders by improving, simplifying and further harmonising transparency in capital markets. In particular, ESMA specifically seeks feedback on the following topics:

• pre- and post-trade transparency requirements for non-equity instruments (bonds, structured finance products and emissions and allowances);
• the obligation to make pre-and post-trade data available on a reasonable commercial basis intended to guarantee that market data is available to data users in an accessible, fair, and non-discriminatory manner, as well as the cost-based nature of fees and the applicable reasonable margin; and
• the obligation to provide instrument reference data that is fit for both transaction reporting and transparency purposes, as well as the proposal to align this data with other relevant reporting frameworks and international standards.

Comments on the consultation package must be submitted by 28 August. Following its review of the feedback, ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of Q4 2024. The response form can be found here.

Banking and Prudential

7. BaFin: Publication: 8th amendment of the MaRisk

On 29 May 2024, BaFin published the 8th amendment of Circular regarding the Minimum Requirements for Risk Management (MaRisk).

The revised MaRisk implements the Guidelines of the EBA on interest rate risks for banking book (IRRBB) and credit spread risk arising from non-trading book activities (CSRBB) (EBA/GL/2022/14).

The key changes of the MaRisk include:

• The newly integrated modul "BTR 5 credit spead risk in banking books", which deals with the risk management and controlling processes for credit spread risks;
• Modul "BTR 2.3 on market risks in the banking book (including interest rate risk)" has been amended by the management of interest rate risks.

The revised MaRisk came into force immediately upon publication. Credit institutions must implement the new requirements for credit spread risks in the banking book by 31 December 2024.

Fund Management

8. BMF: Publication: Discussion draft of the act to promote investments by investment funds in renewable energies and infrastructure

On 21 May 2024, the Federal Ministry of Finance (Bundesfinanzministerium, BMF) published a discussion draft of the act to promote investments by investment funds in renewable energies and infrastructure.

The draft seeks to establish a secure investment framework for the investment of funds in renewable energies and infrastructure by revising the Investment Tax Act (Investmentsteuergesetz) and the Capital Investment Code (Kapitalanlagegesetzbuch).

The proposed amendments cover, amongst others, the following:

• Abolishing tax exemptions with regard to commercial income, which leads to definitive taxation of such income at fund level;
• Investments in infrastructure project companies will be possible for special investment funds;
• Special investment funds should be allowed to generate unlimited income from the operation of EEG systems and charging stations for electric vehicles or electric bicycles without losing their status as special investment funds.

The deadline to provide comments on the draft to the BMF was 14 June 2024. Once the discussion procedure has been completed, a decision will be made on whether to incorporate the draft into a legislative procedure.

Senior Managers and Governance

No new entries. 

Financial Crime

No new entries. 

Retail Services

No new entries. 

Digital Finance and Fintech

9. Official Journal of the EU: Legislation: Commission Delegated Regulation (EU) 2024/1506, Commission Delegated Regulation (EU) 2024/1507, Commission Delegated Regulation (EU) 2024/1504 and Commission Delegated Regulation (EU) 2024/1503, each supplementing Commission Delegated Regulation (EU) 2023/1114

On 30 May 2024, the following supplementary provisions to Commission Delegated Regulation (EU) 2023/1114 were published in the Official Journal of the EU:

• Commission Delegated Regulation (EU) 2024/1503: specifies the fees charged by the EBA to issuers of significant ARTs and issuers of significant e-money tokens. This includes establishing an annual supervisory fee to cover actual and estimated costs;
• Commission Delegated Regulation (EU) 2024/1504: specifies procedural rules for the exercise of the power to impose fines or periodic penalty payments by EBA on issuers of significant ARTs and issuers of significant e-money tokens;
• Commission Delegated Regulation (EU) 2024/1506: specifies certain criteria for classifying asset-referenced tokens (ARTs) and e-money tokens as significant. It will allow the EBA to determine whether the issuer of the relevant token is significant on an international scale outside the EU, and determines indicators it should use to do so; and
• Commission Delegated Regulation (EU) 2024/1507: specifies the criteria and factors to be taken into account by ESMA, the EBA and competent authorities in relation to their intervention powers.

The Delegated Regulations will enter into force on 19 June 2024.

Payments

10. BaFin: Publication: ZAG-MaRisk

On 27 May 2024, BaFin published the Circular regarding the Minimum Requirements for the Risk Management of institutions that are in the scope of a licence under the Payment Services Supervisory Act (Zahlungsdiensteaufsichtsgesetz, ZAG) (ZAG-MaRisk) for the first time.

The ZAG-MaRisk covers especially the following topics:

• Requirements for the proper business organization of institutions according to Section 27(1) ZAG;
• Security requirements according to Section 17 et seq. ZAG;
• Specific requirements on outsourcing according to Section 26 ZAG.

The ZAG-MaRisk is addressed to all institutions, subject of the supervision according to the ZAG, i.e. payment institutions, e-money institutions, but also to payment initiation and account information service providers and outbound branches of German institutions. The structure of the ZAG-MaRisk corresponds to the MaRisk and is, therefore, divided into a general section (Allgemeiner Teil, AT) and a special section (Besonderer Teil, BT). The AT includes the requirements for the risk management system, the BT for the internal control system.

The ZAG-MaRisk came into force immediately upon publication. However, BaFin has extended the deadline to meet the ZAG-MaRisk requirements until 1 January 2025.

ESG

No new entries. 

Other

11. Council of the EU: Legislation: Commission Delegated Regulation (EU) 2024/1502 and Commission Delegated Regulation (EU) 2024/1505, each supplementing Commission Delegated Regulation (EU) 2022/2554

On 30 May 2024, the following supplementary provisions to Commission Delegated Regulation (EU) 2022/2554 (i.e. the Digital Operational Resilience Act) were published in the Official Journal of the EU:

• Commission Delegated Regulation (EU) 2024/1502: specifies the criteria for the designation of ICT third-party service providers as critical for financial entities; and
• Commission Delegated Regulation (EU) 2024/1505: determines the amount of the oversight fees to be charged by the Lead Overseer to critical ICT third-party service providers and the way in which those fees are to be paid.

Both regulations will enter into force on 19 June 2024.

12. ESMA: Statement: Use of AI in retail investment services

On 30 May 2024, ESMA published a statement on the use of AI systems by investment firms and relevant MIFID considerations.

The statement aims to set out how firms using or planning to use AI technologies can comply with MIFID, particularly around the areas of organisational requirements, conduct of business requirements and the importance of prioritising clients' best interests. In this regard, this is designed to be a statement for investment firms in instances where AI tools are specifically developed/officially adopted by the firm or bank but also where firm staff use third party AI technologies (e.g. ChatGPT) with or without the direct approval of senior management.

For more information, please see our briefing here.