News Update Financial Regulatory

In this News Update we discuss: the publication of the final compromise text of the amendments to Solvency II; DORA alert! Compliance requirements from 17 January 2025; and crypto – guidance on MiCAR requirements for advertising and the provision of information. Subscribe here to the News Update Financial Regulatory. 

Amendment directive to Solvency II published

Directive 2025/2, which amended the EU Solvency II directive, has been issued in the Official Journal. The directive, published on January 8 2025, can be accessed through this link. 

The original Solvency II directive was published in 2009 and entered into force on 1 January 2016. Solvency II sets out the key requirements for insurers, reinsurers and captives established in the EU. Solvency II consists of three pillars: governance, reporting and capital requirements. As such, it is vitally important for the insurance sector and contributes to the strengthening of the EU financial system and the resilience of insurance and reinsurance companies. 

The amendment published constitute a material overhaul of the original directive. The unredacted draft text consist of over 350 pages, resulting in numerous changes. The amendments update the existing framework and also focus on new areas of attention, including boosting long-term equity investments by insurers in European companies. This is incentivised by providing a more favourable prudential treatment of qualifying long-term equity investments (i.e. investments held for five years or longer)  the Solvency Capital Requirement under the 'standard formula'. This results in the availability of more free capital. In addition ESG risks in insurers' investment portfolios need to be addressed in more detail, including stricter requirements on risk management, policies and processes. Considering its importance in risk prevention, the amendments also include enhanced requirements for liquidity management and liquidity planning. The amendments also aim to decrease the cost of capital. 

Other changes include the criteria determining what constitutes a small and non-complex insurer, insurance or reinsurance captive, and the less onerous requirements governing such small and non-complex entities. The amendments also address the prudential treatment of instruments yielding low interest or even a negative interest, the criteria used to determine which companies are part of an insurance group, and the criteria used to determine whether a group qualifies as an insurance group or a mixed insurance group. 

Moreover, the amendments result in various adjustments to the powers of regulators, including increased supervisory powers on unregulated group holding companies for group supervision, governance supervision. Regulators will also have supervisory powers temporarily restricting dividend payments and other distributions to shareholders, as well as capital decreases such as share buybacks or equity repayments. Finally, occasionally providing roadside assistance, cross-border in border regions will, under circumstances, no longer require a licence.

Member States will need to implement these changes in their national legislation no later than 29 January 2025 and apply them from 30 January 2027 onwards

Insurers and reinsurers need to start assessing the impact these changes may have on their business and how to address these over the next two to two and a half years.

Should you require any further guidance on any of the changes discussed, please do not hesitate to reach out to Berry van Wijk, Juan Vervuurt or Gijs Hamelijnck. We follow these developments closely and will address these in our future news updates.

DORA alert! From 17 January 2025, financial entities in scope, are obliged to comply with the Digital Operational Resilience Act

The EU Digital Operational Resilience Act ("DORA") aims to ensure uniform management of cyber and ICT risks by financial companies falling within DORA's scope. Key obligations include having an ICT risk management framework, mapping ICT processes and systems, and identifying specific dependencies between business units and ICT services and systems. In addition, quality criteria must be observed when selecting ICT service providers, and minimum requirements apply to ICT contracts. Detailed information about these ICT contracts must be recorded in a register of information, which will have to be shared with the supervisory authorities upon request. Financial institutions must also report ICT incidents to the supervisory authorities in a standardised way and ensure that staff follow adequate training on how to properly handle ICT risks and comply with DORA. Management boards must also have sufficient expertise and be actively involved in DORA implementation and compliance. For more information, see our more detailed DORA updates in our December 2024 and February 2024 News Updates. 

Still working on implementing DORA requirements? Our experts will be pleased to help you achieve compliance as soon as possible. For example, we can assist you by:

• Advising you and conducting DORA impact assessments to provide a clear overview of the obligations that your company must meet, and assisting with their implementation. 
• Negotiating and adjusting contracts with ICT service providers.
• Setting up the DORA register of information.
• Reviewing and drafting policies.
• Providing training on key requirements to staff and board members.
  
  

Crypto – guidance on MiCAR requirements for advertising and the provision of information

The Markets in Crypto-Assets Regulation ("MiCAR") came into full force on 30 December 2024. MiCAR imposes stringent requirements on crypto-asset service providers (CASPs) regarding advertising and the provision of information. The Dutch Authority for the Financial Markets ("AFM") has conducted studies to ensure compliance and protect consumers. We provide an overview of these requirements and highlight key findings from the AFM's research below. You can find the full report here.

The AFM points out that as trading in crypto assets is high risk, it is important that CASPs' information disclosures on this are accurate. Although the information standards from MiCAR are distinct, they also share similarities with those from the Markets in Financial Instruments Directive and the Financial Supervision Act. Therefore, the AFM will consider these similarities where relevant and appropriate. Regarding risks in the choice environment within crypto apps, the AFM referred to its previous guidance, accessible through this link. 

Under MiCAR, CASPs must provide information that is fair, clear and not misleading. This includes advertisements, which must be identifiable as such and must not mislead clients about the real or perceived advantages of any crypto assets. Additionally, CASPs are required to warn clients about the risks associated with transactions in crypto assets, such as the risk that the value of a crypto asset can drop to zero. Another important point is that clients may be misled by use of the term 'savings'. In the Netherlands, the term 'savings' strongly connotes holding funds in a bank account, due to the deposit guarantee scheme. The AFM's studies revealed several instances where advertisements failed to meet these standards. For example, some advertisements did not include adequate risk warnings, while others used too short, non-representative periods when presenting historical returns. To comply with MiCAR, CASPs should ensure that risk warnings are specific and proportionate to the advertisement's context and that historical returns are based on representative periods.

MiCAR also mandates that CASPs make their policies on pricing, costs and fees publicly available in a prominent place on their website. The AFM's research found that some CASPs did not provide this information prominently or comprehensively. In some cases, cost information was scattered across various sections of the website, making it difficult for clients to find. To comply with MiCAR, CASPs should consolidate cost information on a single page, easily accessible from the homepage, and include all plausible cost components such as deposit and withdrawal fees, transaction fees and ongoing costs. 

The AFM plays a crucial role in supervising CASPs' compliance with MiCAR. The authority conducts risk-based supervision and thematic studies to ensure that CASPs adhere to MiCAR's standards. The AFM's findings serve as practical guidance for CASPs, helping them to align their practices with regulatory requirements and protect consumers from misleading information.

MiCAR aims for transparency and consumer protection in the crypto-asset market. CASPs must adhere to the requirements for advertising and information provision to avoid regulatory breaches. If you require guidance on MiCAR compliance or any other related matters, please do not hesitate to contact us. Our team of experienced lawyers is here to assist you in navigating the complexities of crypto-asset regulations.