Author: Theres Jung

The European Securities and Markets Authority (ESMA) has issued draft regulatory technical standards (RTS) under the updated Alternative Investment Fund Managers Directive (AIFMD II) to govern open-ended loan-originating alternative investment funds (AIFs). These proposals aim to ensure robust liquidity management by requiring fund managers to align liquidity risk management systems with the funds’ investment strategies and redemption policies.

Key measures include defining suitable redemption policies, maintaining adequate liquid assets to meet investor demands, and conducting quarterly liquidity stress tests. Managers must also implement systems to monitor liquidity risks continuously, considering factors such as portfolio diversification, credit quality, and investor behaviors. The RTS emphasize the importance of carefully calibrated liquidity management tools and stress scenarios to address market pressures.

These proposals reflect ESMA’s commitment to enhancing market stability and investor protection by promoting transparency and resilience in the operations of loan-originating AIFs.

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The Council of the European Union has reached an agreement on a proposed Financial Data Access (FIDA) framework, designed to create a standardized system for sharing customer data among financial institutions and service providers. This initiative is a key step in modernizing the EU’s financial sector, fostering innovation, improving competitiveness, and giving consumers more control over their data concerning financial information. The framework will apply to diverse financial data, including mortgages, loans, investments, insurance products, pensions, and crypto-assets.

Under the proposed rules, financial institutions will be required to provide secure and standardized access to customer data upon request, ensuring transparency while respecting trade secrets and intellectual property. Consumers will gain access to dashboards enabling them to manage their data permissions in real-time, including granting, withdrawing, and monitoring access. To balance responsibilities, financial institutions may receive compensation for making data available under certain conditions.

With the Council’s agreement, negotiations with the European Parliament will now proceed to finalize the legislative text. Once adopted, the regulation will be published in the EU’s Official Journal and come into effect across the member states two years after publishing it with Regulatory Technical Standards (RTS) to be developed. This move represents a critical step in adapting the EU’s financial sector to the digital age while safeguarding consumer rights and encouraging market innovation.

The European Banking Authority (EBA) has explored the potential advantages and challenges of tokenised deposits, emphasizing the impact of distributed ledger technology (DLT). Tokenised deposits could enhance programmability and efficiency, enabling automation of transactions via smart contracts, which reduces costs, improves speed, and supports complex settlements. These features, however, depend on specific design choices and use cases.

DLT-based systems also have the potential to bolster anti-money laundering (AML) compliance by improving transparency, traceability, and security. Transactions recorded on immutable ledgers can facilitate real-time monitoring and automated compliance processes, although challenges like private key theft and operational vulnerabilities persist.

Consumer protection remains a key concern. Widespread adoption may be hindered by low levels of financial literacy, lack of access to digital tools, and risks of exclusion. Effective disclosures and education will be crucial to mitigate confusion among consumers.

On the regulatory side, distinguishing tokenised deposits from similar instruments like e-money tokens (EMTs) poses classification challenges. The regulatory frameworks for deposits and EMTs differ significantly in terms of rights, protections, and eligibility for deposit insurance.

Additionally, operational risks such as dependency on third-party DLT providers and potential liquidity management challenges highlight the need for robust safeguards. The programmability of tokenised deposits could affect bank liquidity and systemic stability, requiring careful monitoring and empirical analysis as adoption grows.

The EBA’s findings underscore the transformative potential of tokenised deposits while stressing the importance of managing associated risks to ensure consumer confidence and financial stability.

The European Securities and Markets Authority (ESMA) has released its Final Report on Guidelines for Templates and Standardized Tests related to the classification of crypto-assets under Article 97(1) of Regulation (EU) 2023/1114. These guidelines aim to provide harmonized templates for explanations and legal opinions, ensuring consistency in regulatory classification under the Markets in Crypto-Assets Regulation (MiCAR).

The templates address the requirements under Article 8(4), mandating detailed explanations for why a crypto-asset should not be considered an e-money token (EMT), asset-referenced token (ART), or a crypto-asset excluded from MiCAR. Similarly, under Article 17(1), issuers of ARTs—particularly credit institutions—are required to submit legal opinions validating that their assets meet the regulatory criteria for classification.

ESMA’s move comes in response to challenges faced by competent authorities in reviewing the classification of crypto-assets due to inconsistent or insufficient information. Without standardized templates, authorities across Member States risk regulatory arbitrage, inconsistencies in application, and potential lapses in compliance.

The guidelines introduce a standardized test to harmonize how crypto-assets are assessed under MiCAR. This test seeks to clarify whether a crypto-asset falls within the scope of Titles II, III, or IV of MiCAR, streamlining the classification process. ESMA also emphasized the importance of balancing harmonization with flexibility, acknowledging that national interpretations of related financial products may differ.

By implementing these measures, ESMA aims to ensure that competent authorities receive sufficiently detailed and consistent information. This will strengthen the regulatory framework, reduce disparities between Member States, and mitigate the risks of regulatory arbitrage. The publication of these guidelines marks a significant step towards a unified approach to crypto-asset regulation in the EU, providing clarity for issuers and enhancing market stability.