The horizon scanner identifies and summarises key EU legislative and non-legislative initiatives that are likely to impact firms providing financial services in the EU, which are grouped thematically.

It also sets out projected timelines for the finalisation and implementation of relevant legislative initiatives, covering approximately the next 18 months to two years.

This horizon scanner has been prepared as of September 2019. It does not constitute legal advice and is not intended to provide an exhaustive list of all provisions or requirements applicable to such firms during this period.

Today’s regulatory landscape

Following the financial crisis and resulting G20 commitments, the EU embarked on an unprecedented and wide-ranging set of regulatory reforms, including new rules to strengthen financial supervision, tools for bank recovery and resolution, more effective deposit protection and an improved regulatory framework for banks, insurance, securities markets and other sectors.

A decade later, this project is now largely complete, with the last major legislative measure of the post-crisis regulatory agenda, MiFID2, which started to apply in early 2018.

More recently, attention has turned to fine-tuning the EU financial services regulatory framework with the adoption of targeted follow-up actions, ensuring that regulation keeps pace with technological development, and completion of the Banking Union and Capital Markets Union.

A year of change for the European Union institutions

2019 is a year of change for many of the European Union institutions. A new European Parliament was elected in June 2019 and a new European Commission is due to start its five-year term from 1 November 2019. The European Central Bank and European Council are also due to appoint new presidents from November and December 2019, respectively.

There was a significant push to agree outstanding legislative files by mid-April 2019, ahead of the European Parliamentary elections in June 2019. Whilst many legislative proposals were agreed and adopted in the final weeks of the previous European Parliament, others have not yet been agreed. These include proposed regulations on CCP recovery and resolution, creation of a sustainable finance taxonomy, creation of a crowdfunding framework and on the law applicable to third party effects of assignment of claims.

These outstanding proposals will be carried forward and work on them may resume under the new Parliament and Commission later in the year, unless the Commission chooses to withdraw the proposal in accordance with the principle of “political discontinuity”.

Completing Europe’s Economic and Monetary Union

In December 2017, the Commission published a Roadmap for completing Europe’s Economic and Monetary Union (EMU), which included adoption of all remaining proposals on Banking Union during 2018 and finalisation of all pending legislative initiatives for Capital Markets Union (CMU) before the end of the current Commission mandate and EU Parliament elections in mid-2019.

Building blocks for CMU

Following the Commission's mid-term review of the Capital Markets Union Action Plan in Summer 2017, the Commission identified a wide-ranging set of measures that it aimed to put in place by mid-2019, including:

• legislative proposals for greater EU supervisory convergence, including the Omnibus 3 proposals (agreed and EP adopted April 2019)
• a legislative proposal for a new prudential regime for investment firms (agreed and EP adopted April 2019)
• a legislative proposal on assignment of claims and conflicts of laws (carried forward to new Commission)
• a FinTech action plan and legislative proposal on crowdfunding (carried forward to new Commission)
• a legislative proposal to facilitate cross-border distribution of UCITS and AIFs (published in OJ 12 July 2019)
• a legislative proposal on covered bonds (agreed and EP adopted April 2019)
• an Action Plan and on sustainable finance and related measures (published March and May 2018; regulations on low carbon benchmarks and sustainable finance agreed and adopted by EP April 2019 but proposed regulation on creating a sustainable finance taxonomy carried forward to new Commission)

Completing the Banking Union

In October 2017, the Commission called for accelerated progress to agree and adopt various measures to complete the Banking Union by mid-2019, including:

• implementation of the Total Loss Absorbing Capacity (TLAC) standard and amendments to capital requirements to reflect remaining Basel reforms, including the introduction of a leverage ratio and net stable funding ratio (NSFR) (published in OJ 7 June 2019 as part of the risk reduction package)
• finalisation of the proposed European Deposit Insurance Scheme (EDIS) and development of a last resort common fiscal backstop to the Single Resolution Fund, including a credit line from the European Stability Mechanism (ESM) (carried forward to new Commission; an early policy priority identified by the incoming Commission President)
• new measures to reduce non-performing loans (NPLs) (prudential measures published in OJ 25 April 2019; proposed directive setting out other measures carried forward to new Commission)
• supervising large investment firms carrying out bank-like activities in the same way as credit institutions within the Single Supervisory Mechanism (SSM) framework (EP adopted Investment Firms Review package April 2019)
• the development of sovereign bond-backed securities (SBBS) (agreed and EP adopted April 2019)

In his September 2017 State of the Union address, Jean-Claude Juncker also set out his view that all Member States should be encouraged to join the Banking Union.

Sustainable finance and ESG

The Commission adopted its Sustainable Finance Action Plan in March 2018, as part of a wider commitment to implement the Paris Climate agreement, achieve EU climate and energy targets by 2030 and transition to a low-carbon and resilient economy. In addition to targeted new legislation published under the Sustainable Finance Action Plan, the Commission and ESAs have sought to integrate requirements relating to environmental, social and governance (ESG) factors in a broad range of other financial legislation, including:

• The risk reduction package and new prudential regime for investment firms
• The revised Shareholder Rights Directive (SRD2)
• Level 2 measures under MiFID2, AIFMD, UCITS Directive, Solvency 2, IDD and credit ratings disclosure requirements

Policy direction of a new European Commission

In July 2019, the European Parliament confirmed Ursula von der Leyen as the next President of the European Commission. Von der Leyen is officially due to take office from 1 November 2019 but she has already outlined some of her policies and priorities, which may indicate the direction and focus of the next Commission. For example, von der Leyen has said she will propose legislation in her first 100 days in office:

• for a coordinated European approach on the human and ethical implications of Artificial Intelligence; and
• on making Europe the first climate neutral continent by 2050.

In her mission letter to Executive Vice-President-designate Dombrovskis, von der Leyen outlined her initial policy priorities for financial services. Valdis Dombrovskis also made some initial policy announcements during his hearing at the European Parliament on 8 October 2019, including a commitment to propose new legislation covering cryptoassets.

Many of these initial policies are grouped around the following themes:

Banking Union and Capital Markets Union

• Complete the Banking Union by:
  • finalising the common backstop to the Single Resolution Fund; and
  • agreeing on a European Deposit Insurance Scheme
• Speed up work towards a Capital Markets Union, by exploring ways to:
  • make cross-border investments easier;
  • improve the supervisory system; and
  • better harmonise tax and insolvency proceedings.
• Focus on SMEs, including:
  • developing a new public-private fund for SME IPOs; and
  • developing a strategy to help SMEs tackle digitisation and the greening of the economy

Green and Sustainable Finance

• Develop a Sustainable Europe Invest plan and green financing strategy to direct investment and financing towards the transition to a climate-neutral economy
• Agree standards for green bonds and ecolabels
• Conclude the taxonomy regulation
• Work with the European Investment Bank to transform it into a climate bank
• Carry out a fitness check on corporate reporting and a review of the non-financial reporting directive
• Work with partners to lead global efforts to scale up sustainable financing and direct investment

FinTech and Cryptocurrencies

• Develop a FinTech strategy to support digital technologies in the financial system
• Propose legislation to regulate cryptoassets, alongside broader commitments to ensure a common approach to cryptocurrencies across Member States, with the aim of making the most of opportunities and addressing risks
• Finalise the Crowdfunding Regulation

AML, CTF and Sanctions

• Put forward a new, comprehensive approach to AML and CTF, focusing on
  • better enforcement of legislation and better supervision, including a dedicated supervisory body for AML;
  • adapting to risks linked to new technologies; and
  • a stronger role in setting international standards.
• Develop proposals to ensure that
  • Europe is more resilient to extraterritorial sanctions imposed by third countries; and
  • EU sanctions are properly enforced throughout the financial system.