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European Council Adopts Taxonomy Regulation for Sustainable Finance

The European Council (Council) adopted a regulation establishing a EU-wide common classification system “to encourage private investment in sustainable growth and contribute to a climate neutral economy”; and the Council hopes to establish this taxonomy by the end of 2021. The taxonomy aims to give investors and businesses a way to identify environmentally sustainable economic activities through common language. The EU has a 2050 target to become climate neutral and a 2030 goal to reach Paris agreement targets, and the taxonomy is expected to help achieve these goals by empowering investors to adjust their investments to “more sustainable technologies and businesses”.

Eventually, a framework will be implemented based on six environmental objectives set up for the European Union, as follows:

1) climate change mitigation;
2) climate change adaptation;
3) sustainable use and protection of water and marine resources;
4) transition to a circular economy;
5) pollution prevention and control;
6) protection and restauration of biodiversity and ecosystems.

The press release on the sustainable finance taxonomy can be viewed here.

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Council of the European Union

Preliminary Agreement on Rules for Crowdfunding

Finland’s presidency of the European Council and Parliament reached a preliminary political agreement on a crowdfunding framework, which upon finalization of the technical work, will be submitted to the EU ambassadors for endorsement. The framework was constructed to make it easier for crowdfunding platforms to operate on a cross-border basis “by harmonising the minimum requirements when operation in their home market and other EU countries", as well as the implementation of investor protection rules that aim to improve legal certainty while considering compliance costs for providers.  The preliminary framework agreement will encompass crowdfunding campaigns up to EUR 5 million over a 12-month period. The prospectus regulation and MiFID will regulate the larger crowdfunding operations, however, crowdfunding supported by reward and/or donations are not within the scope of the framework.

“The text sets outs common prudential, information and transparency requirements. It also includes specific requirements for non-sophisticated investors. At the same time, the rules for EU crowdfunding businesses will be tailored depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds).”

WOCCU will continue to monitor this issue as it is submitted for endorsement to the EU ambassadors and the proposed regulation is adopted. Additional information on the Presidency and Parliaments’ preliminary crowdfunding rules can be found here.

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Council of the European Union

European Council Adopts Conclusions on Strategic Priorities on AML/CFT

The European Council (The Council) adopted anti-money laundering and counter terrorism financing conclusions in response to their 2019-2024 strategic agenda aimed at strengthening terrorism and cross border crime preventions, and improving cooperation and information sharing. The “Council urges for the swift transposition of all AML legislation into national law and for the strengthening of their effective implementation.” Furthermore, The Council has invited the European Commission (EC) to take action on the existing AML regulatory framework by considering:

  • “ways of ensuring a more robust and effective cooperation between the relevant authorities and bodies involved in anti-money laundering and terrorist financing, including through addressing impediments on exchange of information between them;
  • whether some aspects could be better addressed through a regulation;
  • possibilities, advantages and disadvantages of conferring certain supervisory responsibilities and powers to an EU body.”

WOCCU will continue to monitor The Council and the EC’s AML/CFT regulatory enhancements and any action or input the EC may provide. The “Council conclusions on strategic priorities on anti-money laundering and countering the financing of terrorism”, can be found here.

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Council of the European Union

Anti-money Laundering Action Plan Announced by EU Council

On October 10, 2019, the Council of the EU's Economic and Financial Affairs Council (ECOFIN), met to discuss key issues including anti money laundering matters and reforms. The Economic and Financial Affairs Council is set to adopt conclusions on the implementation of the anti-money laundering (AML) action plan that was presented last December. The Commission, in addressing shortcomings of the current AML policies, is pushing agreed upon reforms including: the 5th revision of the AML directive; new CRD5 capital requirements for banks and the revised European system of financial supervision; enhancing the cooperation and exchange of information between competent authorities; and further harmonizing AML rules by converting the current AML directive into concrete regulations, in addition to giving an EU body specific AML supervisory tasks.

The 5th directive on AML and terrorist financing compels the identification of third country jurisdictions with strategic deficiencies in the management of anti-money laundering and counterterrorist financing regimes, and that pose significant threats to the EU financial system. Accordingly, Ministers discussed a methodology for constructing this list and plan to release a new draft list in the form of a delegated act. The “Commission non-paper on key elements of a refined methodology for identifying high-risk third countries for AML purposes” can be found here.  WOCCU and ENCU will monitor these issues closely as they move to the process to determine any adverse impact on credit unions.

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European Commission, Council of the European Union

Agreement Reached to Strengthen EU Rules on Money Laundering and Terrorist Financing

The European Union (EU) Ambassadors have confirmed a political agreement between the presidency and the European Parliament to amend the EU rules to prevent money laundering and terrorist financing. This is part of the trilogue process and will now move to the Parliament and Council for adoption.

The draft directive is intended to prevent the use of the financial system for the funding of criminal activities, and to strengthen transparency rules to prevent the large-scale concealment of funds

The main changes to directive 2015/849 include the following:

  1. Enhanced access to beneficial ownership registers, so as to improve transparency in the ownership of companies and trusts. The registers will be interconnected to facilitate cooperation between member states with public access to beneficial ownership information on companies; access to beneficial ownership information on trusts and similar arrangements based on a “legitimate interest”; access upon written request to beneficial ownership information on trusts that own a company that is not incorporated in the EU. Member states can provide for greater access.
  2. The threshold for identifying the holders of prepaid cards is lowered from €250 to €150, and customer verification requirements are extended. Virtual currency exchange platforms and custodian wallet providers will have to apply customer due diligence controls, ending the anonymity associated with such exchanges;
  3. Improved cooperation between the member states' financial intelligence units. FIUs will have access to information in centralised bank and payment account registers, enabling them to identify account holders;
  4. Improved checks on risky third countries. The Commission has established and regularly updates a harmonised list of non-EU countries with deficiencies in their anti-money laundering prevention regimes. Additional due diligence measures will be required for financial flows from these countries. The list builds on that established at international level by the Financial Action Task Force.

WOCCU has been active in shaping these regulations to ensure that the credit union perspective is adequately considered.  Namely, the following comment letters were filed during the process that served as a precursor to these amendments to the directive:

A copy of the press release, together with supporting documents, can be viewed here.

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Council of the European Union

Council of the European Union Adopts Creditor Hierarchy, IFRS 9/Large Exposures Rules

The Council of the European Union, as the final result of the trilogue process adopted two legislative acts on banking:

  1. a directive on the ranking of unsecured debt instruments in insolvency proceedings (bank creditor hierarchy); and
  2. a regulation on transitional arrangements to phase in the regulatory capital impact of the IFRS 9 international accounting standard.

The general points of the directive on the ranking of unsecured debt instruments are as follows:

  • It creates a new class of subordinated debt in banks' insolvency hierarchy which would be eligible to meet the internationally agreed TLAC standard for global banks
  • It provides a rapid transposition in to national legal systems, by January 1, 2019 at the latest
  • Contains grandfathering provisions to allow existing national systems and already issued debt instruments still to be valid where they fulfil the conditions

With respect to the phase-in of IFRS 9, its new impairment model may lead to an increase in expected credit loss provisioning and consequential fall in capital ratios.  The original proposal contained a 3-year transitional period, however, at the urging of WOCCU, the impact was mitigated to a 5-year transitional period.  In addition, transitional arrangements will ease the effects of an abrupt end to the exemption currently enjoyed by large exposures.

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Council of the European Union