Financial Service Regulation and Compliance - Investment Firms November 2018
Financial Service Regulation and Compliance - Investment Firms November 2018
Central Bank of Ireland (CBI) publishes Corporate Governance requirements for Investment Firms and Market Operators 2018
The CBI published corporate Governance Requirements for Investment Firms and Market Operators 2018 (the Requirements) in order to provide clarity to the industry and promote high standards of corporate governance within Firms. The Requirements are to be read in conjunction with the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) (MiFID II Regulations), the delegated acts issued under MiFID II and the joint European Banking Authority (EBA) and ESMA Guidelines on the assessment of the suitability of members of the management body and key function holders dated 26 September 2017 and the ESMA Guidelines on the management body of market operators and data reporting service providers dated 28 September 2017. The guidelines outline the requirements for the composition of the Board and the requirements to be imposed on Committees of the Board.
CBI publishes operational and technical arrangements for transaction reporting under Regulation 600/2014 (MIFIR)
The CBI has published a document setting out the operational and technical arrangements for submitting transaction reports under MiFIR to the CBI which is to be read in conjunction with the technical reporting instructions published by ESMA.
ESMA provides new bond liquidity data
ESMA made new data available for bonds subject to the pre- and post-trade requirements of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) through its data register. ESMA’s liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, which include the daily average trading activity (trades and notional amount) and percentage of days traded per quarter. While ESMA updates the bond market liquidity assessments quarterly, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in FITRS (which shall be applicable the day following publication). ESMA is also beginning to publish the completeness indicators related to bond liquidity data. The transparency requirements for bonds deemed liquid today will apply from 16 November 2018 to 15 February 2019. From 16 February, the next quarterly assessment, to be published on 1 February 2019, will become applicable.
ESMA publishes data for the systematic internaliser calculations for equity, equity-like instruments and bonds
ESMA published data for the systematic internaliser calculations for equity, equity-like instruments and bonds under MiFID II and MiFIR. ESMA has published the total number of trades and total volume over the period April-September 2018 for the purpose of the systematic internaliser (SI) calculations for 17,999 equity and equity-like instruments and for 387,212 bonds. The results are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the 6-month observation period. The data publications also incorporate over the counter (OTC) trading to the extent it has been reported to ESMA. The publication includes data for instruments which are no longer available for trading on EU trading venues at the end of October. The publication of the data for the SI calculations for derivatives and other instruments will start on 1 February 2019 as set out in the plan announced by ESMA on 12 July 2018.
ESMA publishes guidelines on certain aspects of the MiFID II suitability requirements
ESMA published guidelines pertaining to aspects of the MiFID II suitability requirements. The guidelines apply to competent authorities and firms in relation to the provision of investment services such as investment advice and portfolio management. Competent authorities to which these guidelines apply must notify ESMA whether they comply or intend to comply with the guidelines as appropriate, stating their reasons for non-compliance where they do not comply or do not intend to comply, within two months of the date of publication of the guidelines on ESMA’s website in all official languages of the EU. The previous guidelines listed under MiFID I will cease to apply from 60 calendar days after the reporting requirement date. The purpose of these guidelines is to clarify the application of certain aspects of the MiFID II suitability requirements in order to ensure the common, uniform and consistent application of Article 25(2) of MiFID II and of Articles 54 and 55 of the MiFID II Delegated Regulation.
ESMA publishes Financial Instruments Reference Data System (FIRDS) for Transparency System Reporting Instructions
The ESMA published a document which specifies the reporting instructions for the provision of data necessary to support the MiFIR transparency regime. The main purpose of this document is to lay down the characteristics of information required for the uploading interface between Trading Venue or National Competent Authorities systems and the FIRDS for Transparency. The intended audience of this document is National Competent Authorities (NCAs), Trading Venues (TVs), Approved Publication Arrangements (APAs) and Consolidated Tape Providers (CTPs) who are going to implement system interfaces for the provision of data to the FIRDS Transparency system.
ESMA proposes a regulatory change to support the Brexit preparations of counterparties to uncleared over the counter (OTC) derivatives
ESMA published a final report with draft regulatory technical standards (RTS) proposing to amend the three Commission Delegated Regulations on the clearing obligation under the European Market Infrastructure Regulation (EMIR). The draft RTS propose, in the context of the UK's withdrawal from the European Union (EU), to introduce a limited exemption in order to facilitate the novation of certain non-centrally cleared OTC derivative contracts to EU counterparties during a specific time-window. The amendments would only apply if the UK leaves the EU without the conclusion of a withdrawal agreement in a no deal scenario. The draft RTS allows UK counterparties to be replaced with EU ones without triggering the clearing obligation. This limited exemption would ensure a level playing field between EU counterparties and the preservation of the regulatory and economic conditions under which the contracts where originally entered into. The draft RTS have been submitted to the European Commission for endorsement, and they are subject to the scrutiny of the European Parliament and of the Council.
ESMA renews binary options prohibition for a further three months from 2 January 2019
ESMA has agreed to renew the prohibition of the marketing, distribution or sale of binary options to retail clients, in effect since 2 July, for a further three-month period. ESMA considered the need to extend the intervention measure currently in effect and noted that a significant investor protection concern related to the offer of binary options to retail clients continues to exist. ESMA therefore agreed to renew the measure from 2 January 2019 on the same terms as the previous renewal decision that started to apply on 2 October 2018.The renewal was agreed by ESMA’s Board of Supervisors on 7 November 2018. ESMA intends to adopt the renewal measure in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measure will then be published in the Official Journal of the EU and will start to apply from 2 January 2019 for a period of three months.
ESMA launches call for evidence on periodic auctions for equity instruments
ESMA has published a call for evidence on periodic auctions for equity instruments. Following the introduction of MiFID II/MiFIR on 3 January, a new type of periodic auction trading system for equity instruments consisting of auctions of a very short duration during the trading day triggered by market participants has been rapidly gaining market share, frequent batch auctions. ESMA, following the first suspensions under the double volume cap (DVC) mechanism, has been approached by stakeholders raising concerns that frequent batch auctions may be used to circumvent the DVC. This call for evidence aims to gather relevant information to inform ESMA in developing its understanding of frequent batch auction trading systems, to assess whether and to which extent these systems can be used to circumvent the MiFID II transparency requirements and, should this be the case, to develop appropriate policy measures. Stakeholders are invited to provide feedback on this call for evidence until 11 January 2019.
ESMA publishes updates on Double Volume Cap mechanism
ESMA has published updates on the double volume cap mechanism (DVCM). The DVCM (Article 5 of MiFIR) aims to limit the trading under the reference price waiver (Article 4(1)(a) of MiFIR) and the negotiated transaction waiver for liquid instruments (Article 4(1)(b)(i) of MiFIR) in an equity instrument. In particular, ESMA shall publish regularly the results of the DVCM on its website in the Double Volume Cap Register. On a temporary basis, the results of the DVCM will be published on the ESMA website in spreadsheet format. ESMA published DVC results files, DVC completeness indicators, suspensions file and statistics on the suspensions.
ESMA issues update to its Central Securities Depository Regulation (CSDR) Q&A
ESMA has updated its Q&A regarding the implementation of the CSDR. The updated Q&A provides answers to questions regarding practical issues on the implementation of the new CSDR regime. The latest update to the CSDR Q&A covers the topics of the provision of services in another Member State and the calculation of cash penalties. The Q&A confirms that the programme of operations to be provided by the Central Securities Depository (CSD) should cover both the core and ancillary services it intends to provide in the host Member State. The second Q&A clarifies that the CSD should provide an assessment of the measures it intends to take to allow its users to comply with the applicable law at least for each type of financial instruments for which it intends to provide the services. In relation to cash penalties the ESMA clarified cash penalties should be applied in the case of settlement fails where the instructions are put on hold by the receiving participant.
ESMA publishes MiFID II Supervisory Briefing on Suitability
ESMA published an updated version of its supervisory briefing on MiFID II suitability requirements. This publication is an updated version of ESMA’s 2012 supervisory briefing and takes into account the content of ESMA’s guidelines on certain aspects of the MIFID II suitability requirements published on 28 May 2018. This supervisory briefing covers determining situations where the suitability assessment is required, information to clients about the purpose of the suitability assessment, obtaining information from clients, arrangements necessary to understand investment products, arrangements necessary to understand the suitability of an investment, suitability report, qualifications of firm staff and record keeping. The purpose of the supervisory briefing is to promote common supervisory approaches and practices in the application of the MiFID II suitability rules.
ESMA publishes updated to its Q&A's on MiFID II and MiFIR market structure and transparency topics
ESMA has updated it Q&A's regarding market structures and transparency issues under the MiFID II and MiFIR. The new Q&As provide clarification on the making of data available free of charge 15 minutes after publication, obligations applicable to systematic internalisers in non-TOTV instruments, Definition of RFQ systems, Pre-trade transparency in RFQ systems, Concept of comparable size in market making agreements and voluntary provision of liquidity. ESMA highlighted that the purpose of these Q&A's is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR. They provide responses to questions posed by the general public and market participants in relation to the practical application of level 1 and level 2 provisions relating to transparency and market structures issues. ESMA will continue to develop these Q&A's in the coming months and will review and update them where required.
ESMA publishes a public statement on managing the risks of a no-deal Brexit in the area of central clearing
ESMA published a Public Statement to address the risks of a no-deal Brexit scenario in the area of central clearing. The ESMA Board of Supervisors supports the continued access to UK CCPs to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability. ESMA has welcomed the communication titled Preparing for the withdrawal of the UK from the European Union on 30 March 2019: a Contingency Action Plan, published on 13 November 2018 where the EC stated that it will act, to the extent necessary, to address financial stability risks in the EU arising from the withdrawal of the UK without any agreement. In such a scenario the EC has stated that it will adopt a temporary and conditional equivalence decision in order to ensure that there will be no disruption to central clearing. ESMA is engaging with the EC to plan, as far as possible, the preparatory actions for the recognition process of UK CCPs, in case of a no-deal scenario.
Joint Committee of European Supervisory Authorities (ESAs) publishes final report detailing EMIR RTS on the novation of bilateral contracts not subject to bilateral margins
The joint committee of the ESAs has published its final report detailing the draft RTS to amend the Commission Delegated Regulation on the risk mitigation techniques for OTC derivatives not cleared by a CCP (bilateral margining) (under the European Market Infrastructure Regulation (EMIR). The draft RTS propose, in the context of the UK's withdrawal from the EU, to introduce a limited exemption in order to facilitate the novation of certain OTC derivative contracts to EU counterparties during a specific time-window. The amendments would only apply if the UK leaves the EU without the conclusion of a withdrawal agreement. The Final Report is to be sent to the European Commission to submit the draft technical standards presented in Annex for endorsement in the form of a Commission Delegated Regulation.