EU to enforce rules on online payments

The European Payments Service Directive II (PSD2), in force since January 2018, is currently stirring debate among Member States regarding the process of its implementation. The Directive is designed to harmonize and simplify money transfers inside the EU, decrease fraud in online payments, and inform consumers about the rights and obligations.

The revised PSD2 extends several obligations concerning data protection and information to and from international payments. It mandates stronger security requirements for online transactions and obliges providers to request customer authentication and demands they register. While the PSD2 compliance date was set for September 2019, the European Banking Authority unconditionally extended the implementation period in order to allow for full application of the new requirements. Nevertheless, a fixed common EU-wide transition period, agreed upon by Member States, is anticipated by the European Commission in order to ensure state-wide compliance.

Enforcement of PSD2 will allow consumers and merchants to increasingly benefit from the internal market and e-commerce. Its efficient integration will increase competitiveness and cost-efficiency for consumers and service providers. PSD2 will allow companies, other than banks, to offer new financial services to the public with consumers’ consent.

EU to review European Financial Benchmarks

As a result of the manipulation of two prominent benchmarks – the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR) – the EU adopted the Benchmark Regulation (BMR) on indices used in financial instruments and contracts or to measure the performance of investment funds in January 2018. The European Commission has initiated a consultation on the review of the BMR, two years after its entry into force to collect stakeholders’ opinions on benchmarks’ efficiency.

The European Commission will review the regime for critical benchmarks and the effectiveness of the mechanism for authorisation and registration of administrators. It will equally evaluate the categorisation of benchmarks and the rules for third countries. The review of the EU Benchmark Regulation will reinforce the accuracy and integrity of indices, which will determine the strength of market confidence. The review of the BMR may introduce new compliance requirements for benchmark administrators, contributors and users with regard to interest rate, foreign exchange, and commodity.

EU guidelines on International Procurement Instrument

The European Commission released a new communication, guiding the participation of third country bidders and goods in the EU procurement market. The document aims to foment competition in public tenders and provide information to public buyers in Member States. The document advises on quality standards, how to assess abnormally low-priced offers and compliance with social and environmental obligations.

The EU’s open procurement market is the largest in the world, with an estimated value of €2 trillion yearly. However, many EU trading partners apply restrictive practices in their markets against EU companies; with more than half of the worldwide procurement market (totalling €8 trillion), closed to European businesses. These restrictions affect competitive EU sectors such as construction, transport, medical devices and pharmaceuticals. The Commission’s recent communication coupled with the sustained asymmetric market access has reignited the call for the adoption of the International Procurement Instrument (IPI) before the end of 2019.

The Commission is expected to call on the Parliament and Council to approve the IPI by 2020. The IPI will promote reciprocity, tackle protectionism and open up procurement opportunities for EU companies in third countries.

EU to cut steel import quotas

The European Commission released a statement in August 2019, affirming that while steel safeguard measures have overall been successful during the first year of implementation, they require further adjustments.

The safeguard measures were initially introduced provisionally in July 2018, to prevent harm to the EU steel industry, which was being affected by US tariffs. The EU steel industry was hit by a 12% increase in imports of finished steel products in 2018. As a result, the measures were later definitively introduced in February 2019.

The European Commission outlined three proposals in the communication, cutting an increase in import quotas to 3% from 5%, adjusting the functioning of the quota for some products, and updating the list of exclusions for developing countries. The proposal is expected to be discussed with affected World Trade Organization members and be submitted to EU Member States for approval ahead of the October implementation. The measures are expected to become effective by October 1, 2019.

Renewed EU focus on anti-money laundering rules

The European Commission adopted a Communication and four reports addressing money laundering and terrorist financing risks in July 2019. The reports stress the need for the full implementation of the fifth anti-money laundering directive and reinforce the supervisory role of the European Banking Authority. The communication addressed the persistent shortfalls in anti-money laundering and terrorist financing efforts. The reports will feed future national and EU policies.

Member States are to transpose the fifth anti-money laundering directive into national law by January 2020, as well as a second directive on combating money laundering by criminal law by December 2020. A new EU AML blacklist is expected to be published in October, after Member States rejected a former list in January.

The European Commission is to discuss the harmonization of anti-money laundering rules and a single EU authority tasked with enforcing these rules, in the upcoming months.

New Energy Charter Treaty

The European Commission has recently published a recommendation for a Council Decision authorising the entering into negotiations on the modernisation of the Energy Charter Treaty (ECT).

The ECT, signed in Lisbon in 1994, is an international agreement that regulates cross-border cooperation in the energy industry. It covers all aspects of commercial energy activities, including trade, investments and energy efficiency. The EU aims at amending the treaty provisions by negotiating innovative rules on investment protection, which would guarantee greater legal certainty to investors in the sector. Furthermore, the EU will call for the inclusion of provisions on sustainable development, climate change and corporate social responsibility.

Given the relevance of the ECT for the energy industry, it will be necessary to monitor the negotiations which are set to start in the following months.

EU to strengthen its financial supervisory architecture

In the framework of the Capital Markets Union project, the European Parliament and Member States have recently reached a political agreement on new rules to strengthen financial supervision and to prevent anti-money laundering.

The new legal regime will improve the governance and the convergence powers of the European Supervisory Authorities. Furthermore, anti-money laundering will be tackled by granting the European Banking Authority a stronger mandate to collect and analyse information coming from the banking and financial sector. Thus, new stringent obligations are expected for market operators.

The politically agreed norms, however, will need to be followed by further technical work from both the European Parliament and the Council of the European Union. In light of the European elections, it will be important to monitor the orientations of the new parliament on this issue and to anticipate the developments in the inter-institutional negotiations.

EU to draw list of key energy projects

The European Commission has launched a public consultation for drawing the list of Projects of Common Interest (PCI). Once identified and selected as PCI, these projects will benefit from faster permitting, lower costs and potentially even funding.

As a first step, projects for electricity, gas, smart grids, oil and CO2 networks need to be submitted. Next, they need to be identified as candidate for PCI. Then, there is the selection process. Several criteria need to be fulfilled. The project must contribute to energy market integration, boost competition, create security of supply and must be sustainable.

So far, three EU wide PCI lists have been completed. This is the forth call for PCI, which should be ready by the end of 2019. Companies and associations should promote their projects until 20 May 2019.

EU third country blacklist

In February 2019, the European Commission came up with a proposal to include all countries that are not doing enough to fight money laundering and terrorism financing on a blacklist. This is the first time the European Commission has embarked on such initiative.

The decision requires EU banks to carry out detailed customer vetting. More specifically, all EU banks that handle payments connected to the blacklisted countries would have to conduct enhanced due diligence on any money moving to or from the jurisdiction on the blacklist. Also, EU banks would be obliged to act on suspicion by staying away from questionable transactions and reporting to the authorities.

The EU blacklist list is a living document. Countries can come clean if they improve their legislation and fulfil European standards. Other countries can be added to the list if the review of their respective legislation show deficiencies.

EU to Advance with Bank Regulation

aviationIn 2018, the European Commission will introduce initiatives for the development of secondary markets for Non-Performing Loans (NPLs) and the protection of secured creditors from borrowers’ default. This comes against the alarming accumulation of NPLs. The sheer volume of NPLs have overstretched the administrative capacities of the European systemic banks, contributing to inefficiencies, reduced management flexibility and increased transaction costs. Therefore, the European Commission’s initiative is aimed at the development of a harmonized EU framework whereby services such as credit restructuring, collateral administration and debt collection can be efficiently delegated to secondary private market entities.

The above initiative goes in tandem with the need for protection of secured creditors from borrowers’ default. This second part of the initiative, aims to remedy the fragmentation of Member States laws and develop fair and adequate measures to recover value from secured loans when the debtor is in risk of default, which in turn will avert the risk of mounting anew NPLs. This new initiative will allow banks to acquire ownership of encumbered assets in an accelerated, extra- judicial in nature procedure. The new, sovereign backed security, will offer all parties increased access to finance as well as more credible options for creditors to secure their loans.

The expected proposals have already stirred opposition especially over financial protection and judicial oversight. Therefore, the shape of the final rules will depend on the negotiations and amendments prior the proposals are launched and during the decision-making phase.