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23 November 2010

European Securities Committee meeting summary


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The agenda of the meeting included CRAs, Securities Law Directive, CSDs, post-trading market infrastructures and UCITS Directive.


 CRAS
The Commission services gave a presentation on the consultation document on CRAs that was issued on 5 November 2010. The Commission explained that some of the topics of the consultation document (including remuneration models, overreliance) had already been raised during the negotiations of the current CRA Regulation. Issues regarding sovereign debt came up in the context of the Euro debt crisis. Many of the topics may also be addressed in an own initiative report planned by the European Parliament for the first quarter of 2011. On the basis of the replies to the consultation, the Commission will decide on the need for any legislative measures in 2011. The Commission services invited all Member States to contribute to this consultation which is open until 7 January 2011.
All delegations that took the floor welcomed the consultation document saying that it was addressing the right questions at the right time. Some delegations especially highlighted the need to address the issue of sovereign debt and remuneration models where they see room for improvement. One delegation said that it was important to increase the transparency of structured finance instruments. Delegations recognized the relevance of the overreliance topic, however some said that this was a difficult topic because alternatives to external ratings are not easy to find. Concerning options how to increase competition in the CRA industry one delegation expressed its support for market based solutions. 

Securities Law Directive
The Commission services gave an update on the time plan, in particular the launch of a second public consultation on 5 November 2010. One delegation asked for the relationship between the draft legislation and the Convention of The Hague. The Commission services responded that future legislation should be as much aligned to international conventions as possible, taking into account that the level of harmonisation could be more advanced in 

Central Securities Depositories (CSDs)
The Commission services outlined the planned timetable for future legislation. A public consultation should be launched in December 2010. Adoption of a future legislative proposal is foreseen for the first week of June 2011.
On the question of a delegation regarding the nature of a future legislative instrument, the Commission services expressed their intention to also consider a regulation if there were pertinent reasons for this. In this respect, one delegation mentioned that due to the increasingly cross-border nature of market activity, a regulation would be the most appropriate legislative instrument. One delegation cautioned against this approach, as future legislation would deeply intrude into the structures of national markets. Another delegation stressed the importance that a future legislative instrument should concentrate on central market functions provided by a CSD and not mix these functions with ancillary functions. Another delegation would not want to see the scope of possible CSD activity limited to central functions.

Post-trading –market infrastructures
The Commission services reported on the setting up of a new Expert Group on Market Infrastructures (EGMI), composed of 25 members and a number of observers. The first meeting was held in September, the next meeting will be held on the 25th of November 2010. The Commission services seek advice from this group on identifying issues that require future action. The group will be expected to deliver an advice within a reasonable period of time, after which the Commission services will enlarge the platform for debate (e.g. via a public conference and a public consultation) and decide on the future policy.
One delegation cautioned against the composition of the group, as it was composed to a large extent of industry representatives. Given the inherent complexity of the subject matter, one of the roles of public policy was to offer a platform for informed debate that would identify future challenges.

UCITS
The Commission services updated the delegations on the planned targeted amendments to the UCITS IV Directive: changes to the UCITS depositaries regime and introduction of new provisions on remuneration policies for UCITS managers. The Commission proposal will take into account the outcome of a consultation with stakeholders to be launched by the end of November 2010. The proposal can be expected in July 2011 the latest.
A number of delegations stressed that the requirements laid down in the AIFMD were designed bearing in mind that the AIF are, in general, suitable for professional not retail investors. Therefore, the level of protection for UCITS investors should be at least the same as envisaged in the AIFMD.
The Commission services responded that specificities of the UCITS sector will be taken into account and that the planned consultations will create an opportunity for stakeholders to voice their opinions, preferences and provide data and evidence on which basis the Commission services will be able to identify the most suitable options. The services confirmed their intention to provide UCITS' investors with at least the same level of protection as has been accorder to investors in AIFs.
One delegation expressed concerns in terms of possible overlap enquired as to the timing between the planned changes to the UCITS Directive and review of the Investor Compensation Schemes Directive and expressed the view that the changes in the depository liability regime should be decided before reaching an agreement on the Investor Compensation Scheme Directive. The Commission services explained that the Commission proposal to amend the UCITS IV Directive will be published most likely in July 2011, and underlined that both workstreams were consistent and did not 'compete' with one another. The representative of Belgium informed that a Council working meeting is planned for December 8. The representative of Hungary expressed the intention of the Hungarian Presidency to reach a political agreement before the end of their Presidency.
On delegation asked for examples as to how depositary liability might be strengthened for UCITS depositaries when already AIFMD provides for strict liability. The Commission services explained that there were some differences across Member States as to the implications of a 'strict' form of liability, and noted that AIFMD foresees two areas where a depository might discharge its liability: force majeure (as defined in AIFMD) and through a contractual discharge of liability with sub-custodian. Given this, it is therefore logically and technically possible that steps could be taken to strengthen protections for UCITS investors, as compared to investors in AIF, by further restricting the cases in which liabilities might be discharged.

PRIPs
The Commission provided an update on the state of play of the PRIPs initiative, noting the split in the work between product transparency rules and rules on sales, and the intention to consult shortly on proposals in both areas. A new disclosure instrument would be proposed for product transparency rules, while on sales, two legislative reviews are envisaged: the first one within the context of the MiFID review which is due for Q2 2011 will address all issues related to MiFID products; the second consists in the revision of the Insurance Mediation Directive (IMD) and is planned for Q4 2011. In the context of this latter review, MiFID-style rules on conflicts of interest and conduct of business would be applied for non-MiFID sales of PRIPs for insurance-based PRIPs.

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