Europe's Ever-Evolving Regulatory Landscape
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Over the past decade, Europe has continuously rolled out new regulations, particularly under the Capital Market Union (CMU) Plan. In a heavy regulation load described as “inflation,” financial actors must constantly remain informed and ahead of these changes before implementing their products and business. Staying compliant with regulations comes at a significant cost, necessitating careful anticipation.
To understand the scope of this regulatory challenge, it’s essential to grasp the enormity of the financial industry in Europe. The activity of collective management has been growing steadily, and while the intent is to drive economic revival, it must be done without endangering the market’s stability. This delicate balance requires robust risk management and liquidity management tools (LMT) to be implemented across all EU funds to handle potential crises effectively. With the recent challenges posed by the COVID pandemic, the importance of these tools has been underscored as investors seek to withdraw their funds in mass, leaving many companies ill-prepared to meet such demands.
The European Union's Economic Revival Through Capital Market Union
One of Europe’s initiatives to revive its economy is the CMU. The European authorities recognize the need to create a level playing field and reduce barriers for investors and companies across the EU area. The CMU’s goal is to break down the current fragmentation in capital markets, allowing funds to flow freely across borders and supporting business growth throughout Europe. As a result, the regulatory changes seek to harmonize rules, enhance transparency, and streamline processes.
Against the backdrop of this action plan, many regulations are underway or have already been issued, the latest of which (Listing Act Package, Retail Investment Package, and Clearing Package), published on 24/05/2023, promises to be quite substantial.
The primary idea behind these regulations is to stimulate the European economy, helping SMEs find funding on the market, encouraging investment in long-term and sustainable activities, making the EU market more efficient and resilient, and taking advantage of digitization technologies. These regulations cover a broad spectrum, including amendments to several Directives and Regulations: AIFM, UCITS, MiFIR, and MiFID II, as well as SFDR, CRR, PRIIPS, CRD, IDD, SII, IFD, …, and revitalizing funds supporting the economy, such as ELTIF funds (ELTIF 2.0 revision). Implementing these regulations requires transparent data management, with the introduction of the European Single Access Point (ESAP) offering unique accessibility to financial and extra-financial data to all financial actors and the public, fostering market integration.
In this context, the EU is emphasizing the protection of the investors, particularly retail ones, setting this as a USSP (Union Strategic Supervisory priorities) topic, ensuring that undue costs are not charged to investors and that the products sold to them offer Value for Money (VFM).
Embracing Sustainable Finance with ESG Criteria
ESG considerations have become integral to investment decisions, and investors increasingly demand transparency on their investments’ environmental, social, and governance aspects. The European Union’s approach to sustainability has set clear expectations for companies and investors to align with environmental goals, promote social responsibility, and ensure effective governance.
As Europe strives for economic revival, it must recognize the evolving societal and environmental concerns. Consequently, ESG criteria have gained prominence, and the Sustainable Finance Regulations aim to harmonize and bring transparency to sustainable activities through a European taxonomy. These regulations, like SFDR, the Taxonomy Regulation, and the CSRD (through the development of ESRS standards, for issuers), establish transparency of financial products relating to their sustainability investment policy and harmonization of ESG data, even if they are regularly being revised and more precise, such as the last consultation on SFDR Delegated Regulation (RTS) closed on July 2023, which will require to form the financial actors to produce more information on their decarbonization objectives as well as more social PAI…
Digitalization and the Future of Financial Activities
The European financial sector must embrace digitalization to remain competitive. The use of blockchain technology holds immense potential for asset managers. Europe’s Digital Finance Package seeks to open and regulate blockchain activities through the pilot regime of Distributed Ledger Technologies (DLT) and the Market in Crypto-Asset Regulation (MiCA), providing a harmonized framework for crypto-assets, including stablecoins and allowing new digital market infrastructures, operating as a DLT MTF (market operator or an investment firm) or as a DLT SS (CSD, central security depository) or as DLT TSS, mixing both activities trading and settlement.
For the asset management industry, blockchain technology is a long-term disruption. It promises increased efficiency (reduction of costs and delays linked to operations), transparency and security in financial operations, and simplifying liability management, allowing the management companies to acquire precise knowledge of unit holders.
NeoXam's Commitment to Compliance
As Europe undergoes these regulatory changes, NeoXam pledges to stay informed and provide the best solutions to help you navigate these developments. The ever-growing database resulting from these regulations will require NeoXam DataHub’s adaptation to inject and manage new data efficiently, particularly concerning crypto and sustainable finance. This transparency in data will be seamlessly integrated into NeoXam Impress, enabling comprehensive regulatory reporting for AIFMD, UCITS, and more. Moreover, NeoXam GP will support the management of these new financial instruments, including crypto, regarding position, valuation, and accounting.
NeoXam recognizes the complexity of the regulatory landscape and the challenges it poses for financial institutions. We understand the need for agile and responsive solutions that can accommodate the dynamic changes in the industry. Our commitment to compliance goes beyond mere adherence to regulations; we strive to empower our clients with the tools and insights they need to thrive in this ever-changing environment.
NeoXam ensures compliance by monitoring regulatory changes until 2030, providing cutting-edge tools and solutions. Together, we confidently navigate Europe’s evolving regulatory landscape, embracing a sustainable and compliant future.
(For further details about the upcoming regulations, please download the full article below)