September 2020 marked the start of action on the European recovery. It also marked a reshuffle of the EU’s Commission with Valdis Dombrovskis becoming the new trade commissioner while Irish MEP Mairead McGuinness was chosen to take over part of his portfolio as commissioner for financial services. Further action focused on a rework of the Capital Markets Union (CMU 2.0) and the start of EU reforms as part of the Digital Finance Strategy Package, with its flagship project, the EU’s new Markets in Crypto-Assets Regulation. More analysis on these timely and welcome reforms along with developments on the most recent twists and turns in Brexit after the UK said it was having second thoughts on the negotiations are available from our Eurozone Hub in the usual space. 
As September gave way to October, Europe braced itself for a renewed range of lockdowns to combat second waves of COVID-19. Further harmonization of measures and responses are set to be pressed ahead amongst Member States as the joint recovery package “Next Generation EU” starts to come online and the discussions on the EU’s budget restart October 29 to finalize finances for the remainder of the multi-annual legislative cycle. 

In order to buttress itself against the continued economic challenges the European Union announced its first successful step with a EUR 17 billion dual tranche bond issued due October 4th, 2030 and 2040. The order books opened at 08:55 am CET on 20 October generating the largest ever order book of EUR 233 billion, a 13 times oversubscription by the time books closed at 10:00 CET. Johannes Hahn, European Commissioner for Budget and Administration, announced: “With this operation, the European Commission has made a first step towards entering the major league in global debt capital markets. It is the highest amount ever borrowed in the history of the EU. The strong investor interest and the favorable conditions under which the bond was placed are further proof of the new-found interest in EU bonds. The “social bond” character of the issuance has helped to attract investors who wish to help EU Member States in supporting employment through these difficult times. The successful launch is a vote of confidence in the European Union as issuer and borrower”. The proceeds of issuance will form part of the first funding package on the European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) and there is more to come as part of the wider recovery driven funding package (see analysis of ours here).

Despite tensions in certain national capitals, there is sense in Brussels that cohesion is growing stronger amongst most (but not all) EU Member States and that Germany’s strategic steering of the rotating presidency will help with crisis management but also drive the breakthroughs for financial services. Germany itself celebrated 30 years since the end of a divided Europe. For many this was a chance to pause to reflect on achievements to date and outlook ahead, notably on how to improve the rule of law issues in certain jurisdictions but also to focus on the wider goal of “strategic autonomy”…certainly once capitals come to a consensus on what this might mean. All of these and many more issues were raised in President of the European Commission Ursula von der Leyen’s State of the Union speech in September setting out policy goals and are also set to be discussed as part of the forthcoming constitutional convention, the Conference on the Future of Europe which has had a sluggish start in preparations. 

The European Commission, along with other EU level authorities that we are covering in our annual outlook report, Navigating 2021, have been quicker than in previous years to publish their 2021 Work Programme. Some chief highlights for financial services from the European Commission’s plans include delivery of: 

1. much of the bulk of the European Green Deal; 
2. the Digital Levy, including as an EU own resource i.e. tax revenue; 
3. the CMU 2.0 plan, including revisions of the AIFMD, MiFIR/MiFID II Regime, Solvency II as well as the investment protection and facilitation framework; 
4. the Banking Union 3.0 with a review of BRRD and work on EDIS;
5. a sustainable corporate governance package; 
6. establishment of an EU green bond standard;
7. review of the EU’s AML legislative package; 
8. a Fair Economy Package; 
9. revisions, as part of the EU’s REFIT package on the CSDR to push forward targeted modifications to areas affecting (a) cross-border provision of services by EU CSDs and handling or relevant applications; (b) the procedures and conditions according to which CSDs have been authorized to designate banks or themselves to provide banking-type ancillary services; (c) rules relating to internalized settlement; and (d) FinTech and use of technological innovation; 
10. a priority proposal for an amendment to the Benchmark Regulation as to the exemption of certain third-country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation;
11. a priority proposal on amending the Securitization Regulation Framework and the EU Recovery Prospectus and MiFID II framework as part of COVID-19 driven reforms; and
12. a priority proposal of the Credit Servicers Directive; and
13. a priority proposal for an EU Regulation to establish EDIS, which has been pending since 2015.

Meanwhile back in Frankfurt, the ECB returned to work in September with a new organizational set-up for its supervisory arm. Its first in the season of monetary policy press conferences confirmed that the strategy review was well underway, that the Pandemic Emergency Purchase Programme could become permanent, and that the existing monetary policy toolbox was very much not exhausted but equally that real action on climate finance, Banking Union and CMU 2.0 and fiscal policy were too big opportunities to miss. The first ECB Listens Event took place on October 21, and first public consultations paved the path for a digital Euro, in the form of a digital central bank currency. 

Moreover, the ECB also announced forthcoming changes (which tie into the Commission’s efforts) to its payments strategy. These changes came a day before TARGET2 ran into troubles following a “major incident” (non-cyber related) adversely affecting the TARGET2 system, its participants and T2S actors. Equally, over at the supervisory arm, the SSM began its transition to its new operating structure (see analysis here and here). October also marked the start of close-cooperation for the SSM for Bulgaria and Croatia (see our analysis here) which marks a number of opportunities for financial services firms and market participants generally provided certain country specific challenges can be overcome. Some country specific reforms may also be on the horizon following the continued German parliamentary and ESMA review of what went wrong with Wirecard coupled with renewed pressures on cleaning up financial crime prevention following the continued fallout from FinCen Leaks. 

Reforms will likely include targeted rule changes but also institutional improvements and thus further Europeanization with greater direct supervisory powers exercised by EU-level as opposed to national-level authorities might lie ahead. At a more macro-level the ECB has been quite blunt in highlighting that with non-performing loans and assets on the rise and cyber-resilience back in focus and further pressures on banking sector consolidation back on the horizon, the remainder of 2020 and start of 2021 will likely be busy.

The lawyers of our financial institutions regulatory team are assisting a number of banks and other regulated firms on regulatory matters. If you would like to discuss any of the items mentioned, or how they may affect your business more generally, please contact any of our key contacts or the wider team of our financial institutions regulatory team.