to the Basics: Finances | Q4 2021


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Editor’s Note

And the band performed on… Welcome to this year’s last edition of our very own To the Point Finance! Looking at the state of global financial markets – where, despite some smoke signals (supply chain issues, early symptoms of inflation in the West, apparent real estate bubbles in the East, rising interest rates by some central banks), asset prices and the resulting transactional activity seem almost to defy gravity – one can’t help but wonder what the medium term will bring. Are we seeing a wave of exuberance (fueled by low interest rates) heading to a point of implosion once investor optimism inevitably wears off? Or are we rather in the midst of a “tide” that will only see incremental downward adjustments in asset prices and financing activity – if at all – after some time? The current demand for legal services would seem to suggest the latter …

Either way, from our perspective the EEC is doing well and while helping our customers get the most out of the business environment we also stay tuned to keep you updated on developments. legal matters in the region. In this edition, we first take a look at the local scene. In Poland, a recent change in the law could spell the end of the unregulated days for the cryptocurrency market. In Croatia and Slovenia, changes to local AIF regimes have brought long-awaited operational clarifications and relaxations, but also new (potentially unwanted) restrictions. In the meantime, Austria is in the process of adapting its covered bond regime to the needs of market participants. We also share our thoughts on the effects of the imminent lifting of the COVID-19 moratoria in Hungary. In the regional / European news, we take a look at the latest prudential banking statistics from the ECB and, last but not least, we give some views on the challenges of the IBOR transition. Enjoy!

Money Rules | Poland

  • Crypto license Some say the new legislation will bring peace and harmony to the Polish cryptocurrency market. All we know is that the recent implementation of the 5th EU Anti-Money Laundering Directive (see here) means that some business activities would no longer be unregulated in Poland. Since October 31, 2021, the provision of (i) the exchange between virtual currencies and fiat currency and / or other virtual currencies, (ii) the intermediation in this exchange, and (iii) the holding of Accounts receivable allowing such exchanges, are regulated activities in Poland and can only be carried out after registration in the register of virtual currency activities kept by the Polish Ministry of Finance. Failure to comply with the new regulations may result in a fine of up to PLN 100,000 (approximately EUR 22,000). Entities already present on the Polish market have six months to comply with the new requirements.

Market | EU

  • ECB statistics – NPLs down? – On October 6, 2021, the European Central Bank released its prudential banking statistics for 2021-Q2 (see here and here), showing an increase in the quality of banks’ assets: the non-performing loan ratio (NPL) fell by 2 , 54% in 2021- Q1 to 2.32% in 2021-Q2, marking a historic low since the first publication in the banking prudential statistics in 2015-Q2 (at the time: 7.48%). From a statistical point of view, the trend was not only due to the decrease in the stock of non-performing loans, but also in relation to an increase in the total of YOY and QOQ loans and allocations. Public loan guarantee programs linked to COVID-19 helped stem the tide of credit depreciation, as did the seemingly less vulnerable state of the economy at the start of the pandemic: no credit boom until 2008 and a Strong Common Equity Tier 1 (CET1) SI capital ratio, 14.94% in Q4 2019 and going forward, has now risen to 15.60% in Q2 2021. The results of ongoing EU work on the NPL action plan, namely increasing transparency and promoting the market or NPL, remains to be seen.

Loan | EU

  • IBOR is dead, long live IBOR- Banks and advisers strive to contain the risks associated with “difficult legacy contracts”. Now, shortly before the supposed end of the transition period, lawmakers and regulators are stepping up efforts to preserve legal certainty and support an orderly transition of old contracts. For CHF-LIBOR, the European Commission has designated SARON +/- compound spread adjustments and the “last reset” method as a statutory fallback. This is done by means of an Implementing Regulation (EU) 2021/1847 which is a directly applicable law. For contracts denominated in USD, it is expected that five USD-LIBOR parameters will continue to be published on the basis of the current “panel bank” methodology until the end of June 2023. For the GBP and the JPY, the FCA has decided to oblige the ICE Benchmark Administration to publish six LIBOR parameters using a “synthetic” methodology

Money Rules | Croatia

  • New rules for AIF funds in Croatia- Mainly based on Directive (EU) 2019/1160, new rules for AIF funds entered into force on October 21, 2021, aimed at reducing administrative and regulatory burdens for AIF funds. See here. The changes specific to Croatia mainly concern: (i) the possibility for members of the board of directors and employees of AIFM to invest in an AIF with a private offering managed by that AIFM; (ii) set higher thresholds for classification purposes for small and medium-sized managers; (iii) allow an investment firm to be depositary of AIFs with a private offer; (iv) reducing the share capital requirement for small AIFMs and relaxing a procedure for appointing members of their board of directors; (v) an expedited approval process for AIFs offered exclusively to professional and qualified investors; (vi) reduction of reporting obligations for small AIFM; and (vii) fees and charges for AIFs with private offers.

Money Rules | Slovenia

  • Welcome to the changes to the AIF pre-marketing regime aggravated by the narrow definition of professional investor – A recent amendment to the Slovenian AIFM Law (entered into force on October 21, 2021), which, among others, transposed / reflected Directive 2019/1160 and Regulation (EU) 2019/1156, introduced a pre-sale regime for units from AIF (EU) by AIFM to professional investors in Slovenia (see here for details). Although the amendment is a welcome change, the legislator took this opportunity to also change the definition of “professional investor”, which no longer includes people who commit to invest at least 150,000 / 50,000 EUR (depending on the characteristics of the fund concerned). Together with other changes concerning marketing to retail clients, the main practical effect seems to be a more limited scope of investors to whom units of AIFs, not approved for marketing to retail clients, can be marketed.

Capital markets | Austria

  • New covered bond regime coming soon- A new law aimed at providing modern and uniform rules applicable to all types of covered bonds issued by credit institutions is currently under parliamentary procedure in Austria (see here). This law will also transpose Directive (EU) 2019/2162 into Austrian law. The main changes to the current Austrian covered bond regime concern (i) the right to choose between an internal and external trustee for the reserve fund, (ii) an option to extend the term and (iii) the concept of ‘double recourse ”(ie recourse against both the issuer and the plan assets) is now explicitly stipulated. As the new law will implement the long-standing demands of market participants, it should be welcomed in the Austrian covered bond market.

Market | Hungary

  • • Moratorium at the edge of the cliff?– When COVID-19 first hit, Hungary quickly introduced a general moratorium on payments automatically covering both retail debtors and businesses. The opt-out was of course possible for those who wished to continue paying their debts. See here for more details. The moratorium has saved many households and businesses, but market participants are increasingly speculating on what the NPL market will look like once the moratorium is lifted, which is expected to occur in June 2022. Currently released statistics from the Hungarian National Bank (see here) and general market expectations suggest that even if the NPL ratio is expected to increase slightly, the consequences will be much brighter than they were ten years ago after the credit crunch.
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