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Risk & Compliance

Regulatory Update: what to take into account after Q2 2023

Date:May 3, 2023

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With the help of compliance software Ruler, ProjectiveGroup closely monitors the developments in financial legislation. We determine the impact of upcoming changes and translate them into the daily practice of our clients.

Which developments should you take into account? Every quarter, we provide a structured overview of the regulatory changes and their consequences for financial institutions in our Regulatory Updates. In this blog, we list a number of focus areas for Q2 2023.

Retrospective

What laws and regulations have recently come into effect?

  • From 1 January 2023, all managers of investment funds and UCITS offered to non-professional investors must have an essential information document (EID). For managers that were previously required to provide an essential investor information document (EID), the EID requirement expired on 1 January 2023.
  • On 1 January 2023, new remuneration rules entered into force for financial enterprises in The Netherlands
  • On 31 March 2023, the Dutch Authority for the Financial Markets (AFM) and Dutch Central Bank (DNB) published the decree amending the Policy Rule on Suitability 2012. The regulators took stock of the necessary changes (including that the board of directors should have knowledge of ESG and DORA, where applicable) and incorporated them into the Policy Rule.

Changes have also been made in response to changes in national and European laws and regulations.

The amended Policy Rule will apply from 1 April 2023.

EBA Guidelines on remote customer onboarding

In September 2020, the European Commission (EC) published its Digital Finance Strategy. This document sets out a strategic goal for digital finance in the EU. In addition, the EC identifies priorities and related actions to enable consumers and businesses to benefit from digital finance while mitigating its risks.

As part of this, the Commission has asked the European Banking Authority (EBA) to develop guidelines on the application of anti-money laundering and counter-terrorist financing (AML/CFT) rules to remote customer onboarding. These guidelines set common EU standards for the development and implementation of CDD processes. The guidelines cover:

  • the steps that financial institutions should take when selecting appropriate and reliable remote customer onboarding tools;
  • the steps financial institutions should take when outsourcing onboarding; and
  • the policies, procedures and controls that a financial institution must have in place when implementing remote customer onboarding activities.

In short, Wwft institutions using remote onboarding tools will need to check that their practices are in line with these guidelines. The guidelines have now been translated and will apply from 2 October 2023.

Revised guidance on MiFID II suitability requirements

ESMA has updated its guidance on certain aspects of the MiFID 2013 suitability requirements. The guidance is relevant for banks and investment firms providing asset management or investment advice services, and managers of investment funds or UCITS providing MiFID ancillary services (investment advice or asset management).

In 2020, regulators from several Member States jointly assessed whether investment firms comply with MiFID II’s suitability requirements. This showed that most investment firms were compliant with the existing MiFID II requirements, but to a lesser extent with the new MiFID II requirements.

ESMA has therefore updated its 2013 guidance on MiFID’s suitability requirements. They have also been brought more into line with the suitability and execution only guidelines and the revised MiFID II delegated regulation on sustainable finance.

The 2013 Guidelines have been supplemented with MiFID II requirements. Among other things, the following issues have been clarified:

  • The requirement to consider the cost and complexity of equivalent products;
  • The costs and benefits of switching investments; and
  • Suitability reports.

The guidelines have also been expanded to include information on the sustainability preferences to be sought from clients. The extension covers the following topics:

  • Gathering information from clients about their sustainability preferences;
  • Assessing sustainability preferences; and
  • Organisational requirements.

Translations of the Guidelines were published on 3 April 2023. This means that the Guidelines will enter into force on 3 October 2023.

Instant Payments Regulation

On 26 October 2022, the European Commission published a proposal for a regulation to promote the availability and use of instant payments (IPs) in euro. At the beginning of 2022, only 11% of all euro transfers within the EU were instant. The proposal aims to make IPs affordable, secure and without processing barriers across the EU.

The proposal amends Regulation (EU) No 260/2012 and Regulation (EU) No 2021/1230 and applies to payment service providers.

The proposal contains the following measures:

  • Payment service providers offering credit transfers in euro will have to offer euro-denominated IPs to all their customers;
  • Charges for euro IPs must be equal to or lower than charges for non-instant payments in euro;
  • Providers of euro-denominated IPs must offer the service of verifying that the account number (“IBAN”) matches the name of the payee of the payment. In addition, the payer should be warned if there is a mismatch before authorising the transaction, as this could indicate fraud;
  • Providers of IPs in euro should follow a harmonised penalty screening procedure. This should be based on daily checks of their own customers against EU sanctions lists, whereas for normal credit transfers the checks are carried out on a transaction-by-transaction basis.

The changes will come into force gradually. The new rules are not expected to come into force until the end of 2023 at the earliest.

EBA advice on non-bank lending

In early 2021, the EC asked the EBA for advice on non-bank lending. The EBA’s advisory report followed in 2022 and included a few proposals.

The EBA’s advice focuses on addressing the risks posed by non-bank lending from a prudential, consumer protection, anti-money laundering and counter-terrorist financing (AML/CFT), macro-prudential and micro-prudential perspective. It highlights the need for further regulatory harmonisation. The EBA has identified the risks associated with non-bank lending and made some proposals to address them. The EBA proposes to:

  • Ensure that consumers are also protected when they receive credit from innovative financial actors. The EBA proposes to:
    • Strengthen disclosure requirements and ensure that they are fair, effective and appropriate for new forms of lending;
    • Strengthen credit assessment requirements to ensure that they are carried out in the best interests of consumers;
  • Strengthen licensing requirements;
  • Clarify the identification of prudential requirements and supervisory responsibilities in cross-border provision of services;
  • Bring all non-bank lenders under the EU-wide AML/CTF framework; and
  • Improve the monitoring and reporting framework.

The potential rules are not expected to enter into force before 2025.

What other upcoming laws and regulations should you be aware of?

In our next Regulatory Update article, we will explain the following developments in more detail:

  • New rules on climate and environmental risks
  • AIFMD revision and UCITS adaptation

If you want to make sure you don’t miss our next Regulatory Update article, you can subscribe to our monthly Risk & Compliance newsletter.

Tailor-made Regulatory Update

We hope this article has given you an idea of the regulatory changes in Q1 2023. Do you want to make sure not to overlook any developments? Then you can request a tailor-made Regulatory Update (available in Dutch and English). Each quarter you will receive a comprehensive report with current developments, legislative changes, publications by regulators and consultations. This report will be fully tailored to your organisation and activities. This way, you will never be faced with unpleasant surprises.