Financial Services Regulation and Compliance - Investment Firms Apr 2021
Financial Services Regulation and Compliance - Investment Firms Apr 2021
CBI launches consultation paper on prospectus fees and service standards
The CBI has launched Consultation Paper 142, which focuses on prospectus fees and service standards. The objective of this consultation paper is to get stakeholders' views on the following matters:
The proposal which focuses on the way in which the CBI fund its prospectus approval activities in the future as well as the proposal on the manner in which the CBI will implement their strategy of moving towards full industry funding.
The proposal to revise the current prospectus approval service standards, which are set out in the Central Bank's Regulatory Service Standards Performance Report.
The closing date for submissions is 16 July 2021.
CBI issues latest markets updates
The CBI has published issues 5 and 6 of its Markets Update for 2021. In domestic news, issue 5 features the speech made by the CBI's Director General, Financial Conduct on 'conduct, culture and trust – priorities for 2021'. Issue 6 focuses domestically on the CBI's statement on the temporary suspension of the obligation to publish RTS 27 reports, the CBI's consultations on crowdfunding marketing requirements and prospectus fees and service standards, and remarks by the CBI's Director General, Financial Conduct at the International Fraud Prevention Conference 2021. Internationally, both issues 5 and 6 include a multitude of updates from ESMA.
EBA launches public consultation on regulatory technical standards on disclosure of investment policy by investment firms
The EBA has published a consultation paper on draft regulatory technical standards (RTS) on disclosure of investment policy by investment firms. The Investment Firms Regulation sets out in Article 52 the requirement for investment firms to disclose information on investment policy. These disclosure requirements will apply to class 2 investment firms with total assets of above €100m. The firms in this bracket must disclose information in relation to those companies whose shares are admitted to trading on a regulated market and in which the proportion of voting rights exceeds 5% of all voting rights issues by the company.
The draft RTS sets out information, templates and tables for the following:
Disclosure of information on the investment firm's voting behaviour, an explanation of the votes and the ratio of approved proposal, with the objective to show if the investment firm is an active shareholder that generally uses voting rights and how it uses them.
The use of proxy advisory firms that should help address uncertainties about potential conflicts of interest.
On investment firms voting guidelines which, when relevant include, a breakdown by economic sector, geographical zone or the topic of the resolution being voted on.
The deadline for submission of comments on the consultation paper is 1 July 2021.
ESMA publishes final report and guidelines on periodic information for trade repositories
On 6 April 2021 the European Securities and Markets Authorities (ESMA) published their final report and guidelines on the reporting of periodic information and material changes by trade repositories (TRs) which are supervised under the European Markets Infrastructure Regulations (EMIR) and Securitised Financing Transactions Regulations (SFTR). The objective of the guidelines is to increase the transparency of TRs supervised by ESMA.
The guidelines aim to achieve the following benefits:
reduce the time it takes to process information received
ensure a fair system by establishing harmonised reporting templates
ensure complete information that is needed for ESMA's risk-based supervision
improve the internal planning of ESMA's supervision teams in relation to facilitative processing and information review
reduce efforts to request information randomly and ensure that no information is left out
standardise the practices that are already being implemented by TRs on a best effort basis
The guidelines will apply from 30 June 2021.
ESMA highlights the need for increased efforts on EMIR and SFTR data quality
On 15 April 2021 ESMA published its final report on EMIR and SFTR data quality. The report focuses on the progress which has been made to improve EMIR data quality. The report concluded that progress has been made but that more efforts need to be made by National Competent Authorities (NCAs) and ESMA in order to improve EMIR data quality.
ESMA promotes coordinated action on the suspension of best execution reports
ESMA has issued a statement in relation to the temporary suspension of the obligation on execution venues to make available to the public data related to the quality of execution of transactions on their venues. These are referred to as RTS 27 reports. The aim of this statement is to promote coordinated action by NCAs. ESMA does not expect NCAs to prioritise supervisory actions towards execution venues relating to the obligation to publish the RTS reports, until the date when the national transposition measures apply.
ESMA updates Q&A on MiFID II and MIFIR Market structure topics
ESMA has updated one of its Q&A on tick sizes to reflect the amendment that was introduced by MiFID II which excluded Large in Scale transactions from the mandatory tick size regime. The purpose of the Q&A is the promote common supervisory approaches and practices in the application of MiFID II and MiFIR.
ESMA makes recommendations for organised trading facilities under MiFID II / MiFIR
On 8 April 2021 ESMA published its final report on the functioning of organised trading facilities (OTF). The main aim of the report is to analyse the definition of OTFs while looking closely at the definition of the trading venue perimeter and of a multilateral system. The report also takes a look at reviewing the number of OTFs that are authorised within the European Union and their market share. ESMA also proposes to the European Commission to move Article 1(7) from MiFID II to MIFIR.
This report has been submitted to the European Commission and is expected to be taken into account for further legislative proposals for MiFID II.
SMSG gives advice to ESMA on its consultation paper on guidelines on certain aspects of appropriateness and execution-only
On 28 April 2021 the Securities and Markets Stakeholders Group (SMSG) advised ESMA on their consultation paper on their draft guidelines on certain aspects of the MiFID II suitability requirements, adjusting them to the appropriateness and execution-only framework. The SMSG is of the view that the draft guidelines are beneficial to the protection of investors.
The SMSG made the following comments:
Adjustments should be envisaged in relation to the updating of client information, as it is important to keep the right balance between high level investor protection and the availability of products for clients who buy on their own initiative.
The common supervisory action (CSA) is not available to the public. The SMSG recommended that its main findings and future actions should be made available to the public
The present guidelines do not guarantee consistency of qualification of clients and subsequent matching with products and services across firms. The SMSG advised ESMA to carry out a peer review to detect best practices.
The SMSG proposed that ESMA presents a standardised template that specifies the difference in protection in non-advised and advised services.
The SMSG is reluctant to adopt a strictly prescriptive approach given the nature of the relationship firms have with clients when offering non-advised services. The SMSG appreciates the significance of effective, prominent and intelligible warnings in order to prevent possible harmful transactions.
The SMSG is concerned with the concept of "more complex products" referred to in the consultation paper. The SMSG advises ESMA to delete this distinction as it can leave room for varied interpretations which could harm investor protection.
The SMSG acknowledges the importance of sustainable finance however they are of the view that it is necessary to avoid the risk of 'overshooting' which could undermine the credibility of both the sustainability goals and the appropriateness test.
ESMA issues latest double volume cap data
ESMA has updated its public register with the latest set of double volume cap (DVC) data under MiFID II. The updates include DVC data and calculations for the period 1 March 2020 to 8 February 2021 as well as updates to already published DVC data. The number of new breaches is 45:38 equities for the 8% cap, applicable to all trading venues, and seven equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 15 April 2021 to 14 October 2021. The instruments for which caps already existed from previous periods will continue to be suspended. As of 12 April 2021, there are a total of 200 instruments suspended.
ESMA publishes draft regulatory technical standards on changes to CCPs' activities and models
ESMA has published its final report containing draft RTS relating to changes to central counterparty (CCP) services and activities, as well as models and parameters under the EMIR. EMIR requires CCPs to request an extension of their authorisation from their competent authorities where they wish to carry out additional services or activities not covered by their initial authorisation. CCPs must also obtain validation from their competent authority before making any significant change to their risk models or parameters.
The draft RTS specify:
the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation
the conditions under which changes to the CCP’s models and parameters are significant and therefore require a validation
the procedures for consulting the CCP college on whether those conditions are met