Financial Services Regulation and Compliance - Investment Firms Apr 2020

Domestic

The Central Bank of Ireland introduces prudential regulatory flexibility measures

The Central Bank of Ireland (CBI) has issued communications to regulated financial services providers, introducing prudential regulatory flexibility measures in light of COVID-19.

In the communication concerning securities markets, investment management, investment firms, and fund service providers, the CBI announced a number of measures for entities in this sector. The CBI is allowing for flexibility in respect of the remittance dates of a number of regulatory returns due by investment firms, fund service providers and investment funds. This also flexibility also includes the submission of assurance reports by investment firms and fund service providers in relation to the safeguarding of client assets or investor money.

The communication also clarifies that while the CBI expects investment firms and fund service providers to meet the existing Risk Mitigation Programme (RMP) dates if they are in a position to do so, firms can engage directly with their usual supervisors if they have difficulty meeting specific RMP dates. The CBI is also postponing its regular assessments of the domestic regulatory policy framework in respect of securities markets, investment management activities and investment firms. The communication also clarifies how it will apply various measures recently announced by ESMA (the European Securities and Markets Authority).

European

ESMA promotes coordinated action regarding benchmarks external audit requirements

ESMA has issued a public statement to promote coordinated action by National Competent Authorities (NCAs) regarding the timeliness of fulfilling external audit requirements for interest rate benchmark administrators and contributors to interest rate benchmarks under the Benchmarks Regulation (Regulation (EU) 2016/1011).

ESMA, in coordination with NCAs, expects NCAs not to prioritise supervisory actions against administrators and supervised contributors relating to the timeliness of fulfilling those audit requirements where the audits are carried out by 30 September 2020. In addition, ESMA encourages NCAs to apply a risk-based approach in the exercise of supervisory powers in their day-to-day enforcement of the Benchmarks Regulation in a proportionate manner concerning the timeliness of fulfilling those audit requirements.

Nevertheless, ESMA expects that where administrators and supervised contributors anticipate that the fulfilment of those audit requirements will be delayed, that they will inform their NCA.

ESMA issues No Action Letter on the new ESG disclosure requirements under the Benchmarks Regulation

On 29 April 2020, ESMA issued a 'no action letter' to promote coordinate action by NCAs regarding the new environmental, social and governance (ESG) disclosure requirements for benchmark administrators under the Benchmarks Regulation. ESMA also issued an opinion to the European Commission on the need for prompt adoption of the relevant delegated acts.

The new disclosure requirements are due to apply from 30 April 2020, though the delegated acts that will supplement these new requirements have not yet been adopted. ESMA has outlined that, until the delegated acts apply, NCAs should not prioritise any supervisory or enforcement action in relation to the new disclosure requirements.

ESMA extends MiFID II / MiFIR transparency review report consultation

ESMA has announced that it will be extending the response date for the consultation on the MiFID II / MiFIR review report on the transparency regime for non-equity instruments and the trading obligation for derivatives to 14 June 2020. The decision was taken in light of COVID-19 and in recognition of market participants' current focus on crisis work and operational constraints, as well as the complexity of the report.

ESMA updates its risk assessment

ESMA has updated its risk assessment in light of the impact of COVID-19. The pandemic, in combination with existing valuation risks, has led to large equity market corrections since mid-February, driven by a sharp deterioration in the outlook for consumers, businesses and of the economic environment. Corporate bond, government bond markets and a number of investment funds show signs of stress. Market infrastructures have continued to function in an orderly manner despite significant surges in trading activity, the use of circuit breakers and increases in derivatives margins.

ESMA sees a prolonged period of risk to institutional and retail investors of market corrections and very high risks across the whole of ESMA’s remit.

This updated complements ESMA's regular TRV and risk dashboard monitoring. The next risk dashboard covering the entire Q1 2020 will be published in May 2020.

ESMA completes review of MiFID II commodity derivatives regime

ESMA has published a review report on the impact of position limits and position management on commodity derivatives markets, following over two years of MiFID II. The report contains proposals to make the commodity derivatives framework operate more efficiently for market participants and competent authorities. This includes refocusing the position limit regime on the most important commodity derivatives contracts, and improving convergent implementation of position management controls by trading venues through Level 2 measures.

ESMA has also published technical advice to the European Commission on the weekly aggregated information to be published by trading venues on open positions per category of stakeholders. The aim is to ensure that this information is made available for a larger number of commodity derivatives traded on EU trading venues to ensure more transparency in EU commodity derivative markets.

The review report will feed into the European Commission's review of MiFID II.

ESMA postpones publication dates for annual non-equity transparency calculations and quarterly SI data

ESMA has announced that it is postponing the application of the annual non-equity transparency calculations and the calculations for the quarterly systematic internaliser test for derivatives.

It also announced that it is postponing the publication dates for annual non-equity transparency calculations for the systematic internaliser test for derivatives, ETCs, ETNs, emission allowances and structure finance products under MiFID II.

  • Transparency calculations: the publication of the calculations including the liquidity assessment and the determination of the pre-trade and post-trade large in scale and size specific to the instrument thresholds for derivatives, ETCs, ETNs, emission allowances and structured finance products will be postponed from 30 April 2020 until 15 July 2020, and their application from 1 June 2020 to 15 September 2020. The transitional transparency calculations will continue to apply until 14 September 2020.
  • Systematic internalisers: ESMA will publish the data for the performance of the systematic internaliser test for derivatives, ETCs, ETNs, emission allowances and structured finance products by 1 August 2020 and the mandatory systematic internaliser regime for derivatives, ETCs, ETNs, emission allowances and structured finance products will apply from 15 September 2020.
  • Bonds: the publication and application of the annual transparency calculations for bonds remain unchanged and the new pre-trade and post-trade large in scale and size specific to the instrument thresholds will be applicable from 1 June 2020.

For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 11 May 2020