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COVID-19 - Impact on Financial Sector - 29 july 2020

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29/07/2020

Please find below a summary of  COVID-19 developments of last week (20/7 until 24/7 included); these alerts are dedicated to following up on the financial  regulators’ responses to the crisis. We have also created a COVID-19 Resource Center to offer legal and business insights as this crisis continues to evolve. We wish you and your loved ones well.

If you have any questions please feel free to contact: 

Tom Van Dyck
+32 475 90 90 91 
t.vandyck@liedekerke.com

Freya Mareels 
+32 475 25 11 50
f.mareels@liedekerke.com

Wim Dedecker
+32 491 36 03 99
w.dedecker@liedekerke.com

 

24/07/2020

 Coronavirus response: How the Capital Markets Union can support Europe's recovery

 
 

In response to the coronavirus crisis, the EC has proposed the following amendments under the Capital Markets Recovery Package:
 
(1) Amendments to the Prospectus Regulation
 
The EC proposed the following amendments to the Prospectus Regulation :

  • introduce a shorter prospectus, the “EU Recovery Prospectus”, for well-known issuers which have been listed for at least 18 months and want to issue shares;
  • introduce the adoption of a “supplement” which is a supplemental document to a prospectus that must be published when a significant new factor, mistake or inaccuracy relating to the information included in a prospectus arises;
  • support credit institutions in raising additional funds on a regular basis without the necessity of issuing a new prospectus each time the bank raises additional funds.
     

(2) Amendments to MiFID II
 
The MiFID II proposed amendments relate to the following:

  • the level of information provided to clients, in particular professional clients such as large corporates and financial institutions, will now be more targeted to their needs;
  • derivatives rules for which the underlying value is a commodity, such as gas or electricity, will be amended to ensure that companies, whose primary business is in these commodities, are able to  shield themselves from future risks in commodity price movements;
  • rules guiding the provision of research on small and mid-cap companies and on fixed income instruments will be partially revisited.
     

(3) Amendments to the securitisation rules
 
The proposals of amendments to the securitisation framework aim to :

(4) Amendments to Benchmarks Regulation
 
The proposal aims to create a new framework to have a statutory replacement rate in place by the time LIBOR is no longer in use. Such a rate would take the place of LIBOR in all contracts and financial instruments that mature after 2021.

 

     
22/07/2020

 The FSMA asks various insurers to update the information on their sites concerning trip cancellation insurance

 
 

The FSMA has requested several insurance companies to adapt information published on their website relating to the exclusions from coverage of claims linked to an epidemic, pandemic or quarantine. Several insurers had recently adapted the terms and conditions of their insurance policies or inserted mentions on their website stating the exclusion of coverage of epidemic, pandemic and quarantine claims. Such references could discourage some clients from calling on their insurance, and may also constitute misleading or inaccurate information. The concerned insurance companies have corrected the information stated on their websites following the FSMA’s request..

 

     
21/07/2020

 EBA publishes overview of public guarantee schemes issued in response to the Covid-19 pandemic

 
 

EBA has published a list of the 47 public guarantee schemes which have been issued in response to the COVID-19 pandemic. The list clarifies whether the scheme is targeted to new lending or to existing exposures, the type of obligors or exposures covered by the scheme, as well as the level of coverage of exposures by the guarantee.

 
     
21/07/2020

 Supervisory Statement on the Solvency II recognition of schemes based on reinsurance with regard to COVID-19 and credit insurance

 
  In its Supervisory Statement, EIOPA has pointed out the significant differences in the way that national schemes in the area of credit insurance are implemented through the European Commission Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak. To ensure a level playing field and consistent treatment of schemes with the same economic consequences as reinsurance, EIOPA outlines in its Statement a number of supervisory recommendations for national competent authorities.  
     
17/07/2020

 Ultra-low yields and COVID-19 crisis significantly affecting the European insurance sector

 
 

EIOPA has published a report on the impact of ultra-low yields on the insurance sector, including the first effects of the COVID-19 crisis. Insurers are significantly challenged in terms of asset allocations, profitability, solvency and business model adaption. The following impacts and evolutions have been identified in the report:

  • ultra-low interest rates affect insurers through the balance sheet channel both on the assets and liabilities side, but also through the income channel. Considering that market yields are at very low levels, this might have an impact on insurers’ profitability in the medium to long-term horizon. In addition, the Covid-19 pandemic and the resulted central banks’ response measures to alleviate the impact on the economic activity will contribute to the continuation of the low interest rate environment;

  • the Covid-19 shock added additional pressure on insurers’ solvency ratios through increased market volatility, adverse movements in equity prices, bond yields and credit spreads and potential bonds downgraded;

  • regarding the insurers’ business model, there is an evidence of a gradual shift from with profit participation products with guaranteed returns towards pure unit-linked products and hybrid products;

  • higher costs as well as the fact that consumers are bearing the risk in unit-linked products could lead to a mismatch between consumers’ expected and actual returns.