1. European Commission rejects draft RTS on sub-contracting ICT services supporting functions under DORA
On 31 January 2025, the European Commission (“Commission”) published a letter (dated 21 January 2025) that it had sent to the Joint Committee of the European Supervisory Authorities (“ESAs”) (“Letter”). In the Letter, the Commission rejects the draft RTS that the ESAs submitted, which specifies the elements a financial entity needs to determine and assess when sub-contracting ICT services supporting critical or important functions under Article 30(5) of DORA.
The Commission notes that the draft RTS specifies the conditions and the criteria to be taken into account by financial entities when sub-contracting ICT services supporting critical or important functions throughout the lifecycle of contractual arrangements between financial entities and ICT third-party service providers. In particular, financial entities are required to assess the risks associated with sub-contracting during the pre-contractual phase, including the due diligence process. In addition, the RTS includes requirements for the implementation and management of contractual arrangements on sub-contracting, including conditions to ensure that financial entities monitor the sub-contractors effectively underpinning the ICT services that support critical or important functions.
The Commission considers that the requirements introduced by Article 5 of the draft RTS on the "Conditions for sub-contracting relating to the chain of ICT sub-contractors providing a service supporting a critical or important function by the financial entity" go beyond the mandate given to the ESAs by Article 30(5) of DORA. This is because they introduce requirements not specifically linked to the conditions for sub-contracting. In the light of this, the Commission rejects the draft RTS.
The Commission considers that Article 5, and the related recital 5, should be removed from the draft RTS to ensure they comply with the mandate. It intends to adopt the RTS once the ESAs have made the necessary modifications.
Next Steps
The ESAs have six weeks to resubmit the draft RTS reflecting the Commission’s proposed amendments. If the ESAs fail to meet this deadline, the Commission can either adopt the RTS with its own amendments or reject it completely. We will continue to monitor this development.
2. European Commission launches EU Competitiveness Compass
On 29 January 2025, the European Commission launched its Competitiveness Compass (“Compass”) along with a supporting factsheet. The Compass sets out a path for Europe to become the place where future technologies, services, and clean products are invented, manufactured, and put on the market, while being the first continent to become climate neutral.
The Compass builds on the Draghi Report and sets out an approach aligned with its three transformational imperatives to boost competitiveness, as follows:
- Closing the innovation gap – the Commission proposes AI Gigafactories, and AI Apply initiatives to promote development and industrial adoption of AI in key sectors. It will table action plans for advanced materials, quantum, biotech, robotics and space technologies. A dedicated EU Start-up and Scale-up Strategy is proposed in order to address obstacles that are preventing new companies from emerging and scaling up.
A proposal for a 28th legal regime will simplify applicable rules, including relevant aspects of corporate law, insolvency, labour and tax law, and reduce the costs of failure. - A joint roadmap for decarbonisation and competitiveness – addressing matters such as: the Clean Industrial Deal; an Affordable Energy Action Plan; and an Industrial Decarbonisation Accelerator Act.
- Reducing excessive dependencies and increasing security - the Compass refers to a new range of Clean Trade and Investment Partnerships to help secure supply of raw materials, clean energy, sustainable transport fuels, and clean tech from across the world. A review of public procurement rules will allow for the introduction of a European preference in public procurement for critical sectors and technologies.
The Compass also identifies five horizontal enablers for competitiveness, as follows:
- Simpler, lighter, faster: ensuring that EU regulation is fit for competitiveness;
- Lowering barriers to the single market;
- Financing competitiveness and a Savings and Investment Union;
- Promoting skills and quality jobs; and
- Better coordination of policies at EU and national level: a Competitiveness Coordination Tool to be launched by the Commission to this end.
On 3 February 2025, the Commission established a new Task Force titled ‘EU's Future Competitiveness', which will coordinate the work to operationalise the framework set out in the Compass. It has been advised that its work will commence on 1 February 2025. Its main aim is to support activities across the Commission on closing the innovation gap, combining industrial decarbonisation and competitiveness, and reducing excessive dependencies and increasing security.
At the launch of the Compass, President of the European Commission, Ursula von der Leyen, stated:
“Europe has everything it needs to succeed in the race to the top. But, at the same time, we must fix our weaknesses to regain competitiveness. The Competitiveness Compass transforms the excellent recommendations of the Draghi report into a roadmap. So now we have a plan. We have the political will. What matters is speed and unity. The world is not waiting for us. All Member States agree on this. So, let's turn this consensus into action.”
3. European Commission seeks feedback on Savings and Investments Union
On 3 February 2025, the European Commission (“Commission”) launched a Call for Evidence to collect input on its overall approach to the Savings and Investments Union (“SIU”). The purpose of this Call for Evidence is to gather views, facts and evidence from a range of consumers and stakeholders on the progress made on the Capital Markets Union, along with identifying significant challenges that the SIU should address.
The Call for Evidence sets out the political context behind why the SIU is needed, the issues it will address and why action is required. It then provides an outline of what the SIU aims to achieve and how. In this regard, the following should be noted:
- the SIU will contribute to achieving wider economic and social objectives, notably supporting the green and digital transitions and ensuring economic and social sustainability for the EU in the long term;
- the SIU aims to contribute to wealth creation, including by serving retirement needs, and more generally to ensure more prosperity and fairness for Europeans;
- the SIU aims to offer more financing options to businesses, thereby being a key driver of improved competitiveness and productivity; and
- the SIU is a long-term project and will consist of a series of actions that will foster the development of capital and banking markets. Building on their complementary scopes and different levels of advancement, the Capital Markets Union and Banking Union should be further developed so that the SIU can help the EU reach a ‘tipping point’, which will set in motion a more accelerated process of market development.
The Call for Evidence highlights that the following principles will guide the implementation of the SIU:
- the Commission will ensure the right balance between legislative or non-legislative action, acknowledging that legislative action should be focused on key areas and reduce burdens as much as possible;
- SIU will have at its centre the needs of EU citizens, who can be the among the greatest enablers and beneficiaries of SIU;
- SIU will focus on supporting the Commission’s priorities on increasing Europe’s sustainable prosperity and competitiveness and be complementary to other policies which are directed at specific sectors and promoting investments in strategic areas.
Speaking at the launch of the Call for Evidence, Maria Luis Albuquerque, Commissioner for Financial Services and the Savings and Investment Union stated that the vision for the SIU is “[for] European savers to earn a fair return on their savings…European businesses and innovators to have access to the financing they need to drive our economy forward.”
Next Steps
The Commission welcomes input from all stakeholders, including civil society, consumers, social partners, businesses and Member State authorities. Submissions can be made through the portal linked here, before the deadline of 3 March 2025. The Commission will consider contributions when drafting its Communication on the SIU, which is speculated to be released on 19 March 2025.
4. EIOPA publishes technical advice on implementing new proportionality framework under Solvency II
On 30 January 2025, the European Insurance and Occupational Pensions Authority (“EIOPA”) published its technical advice (“Advice”) on the implementation of the new proportionality framework under the Solvency II Amending Directive. This advice had been requested by the Commission on 30 April 2024 and follows EIOPA’s consultation on the topic in August 2024. For more detail on the consultation, please see the relevant Matheson Insight.
The objective of the Advice is to specify
- the methodology for classifying undertakings and groups as small and non – complex (“SNCU”); and
- detail the conditions for granting or withdrawing supervisory approval for proportionality measures for undertakings not classified as SNCU.
As regards the methodology for classifying undertakings as SNCU, EIOPA is of the view that that the methodology set out in the Solvency II Amending Directive is clear and comprehensive and that further specifications will not be needed.
With regard to the conditions for granting or withdrawing supervisory approval for proportionality measures to undertakings that are not SNCU, the Advice sets out a set of proposed conditions that aim to guide supervisory authorities in their assessment of undertakings' applications for proportionality measures. The Advice sets out general conditions and conditions that are specific to individual proportionality measures. The conditions are designed to ensure that the proportionality principle is applied according to the nature, scale, and complexity of the risks faced by the undertakings.
EIOPA has stated that the Advice:
“… marks an important step towards reducing the regulatory burden on undertakings in Europe’s insurance sector while maintaining a prudent approach to risk management. The introduction of tailored and proportionate elements to the regulation supports market diversity, competition and innovation while allowing supervisory authorities to allocate resources efficiently towards more complex firms with higher risk profiles.”
5. ESMA provides guidance on MiCA best practices
On 31 January 2025, the European Securities and Markets Authority (“ESMA”) published a supervisory briefing that sets out guidance for crypto asset service providers (“CASPs”) and national competent authorities (“NCA”) on ESMA’s expectations of both during the authorisation process under MiCA. The purpose of the supervisory briefing from a NCA perspective is to seek to achieve a convergent approach in the EU when it comes to authorisations under MiCA.
The guidance provided focuses on a number of key areas including:
- Risk factors that NCAs should consider in their approach to authorisation;
- Substance and governance including the ability of CASPs offering their service in the EU to operate autonomously and with sufficient in-country personnel;
- Outsourcing - the effective limits to set regarding the externalisation of functions and services;
- Business plans - guidance on the assessment of business plans of prospective CASPs;
- Suitability of personnel and the importance for CASPs, and particularly its executive management, to demonstrate effective technical knowledge of the crypto ecosystem; and
- Notifications - NCAs should create conditions in which clients are able to identify, in national registers or in a dedicated section of the NCA's official website, that an entity is allowed to provide cryptoasset services.