Financial Services Regulation and Compliance - Investment Firms December 2022

Domestic

European Union (Recovery and Resolution of Central Counterparties) Regulations 2022 [S.I. No. 547 of 2022]

On 13 December 2022, the European Union (Recovery and Resolution of Central Counterparties) Regulations 2022 [S.I. No. 547 of 2022] was published. These Regulations give effect to Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework for the recovery and resolution of central counterparties. The objective of a recovery and resolution framework is to ensure that central counterparties (CCPs) set out measures to recover from financial distress, to maintain the critical functions of a CCP which is failing or likely to fail while winding up the remaining activities through normal insolvency proceedings, to preserve financial stability and to avoid a significant adverse effect on the financial system.

European

ESMA publishes guidelines and technical documentation on reporting under EMIR REFIT

On 20 December 2022, ESMA published guidance to clarify some reporting and data management obligations under the amended EMIR rules and practical guidance on their implementation. The following aspects were clarified:

  1. transition to reporting under the new rules
  2. the number of reportable derivatives
  3. intragroup derivatives exemption from reporting
  4. delegation of reporting and allocation of responsibility for reporting
  5. reporting logic and the population of reporting fields
  6. reporting of different types of derivatives
  7. ensuring data quality by the counterparties and the trade repositories (TRs)
  8. construction of the trade state report and reconciliation of derivatives by the TRs
  9. data access

The amended EMIR rules will enter into application on 29 April 2024. EMIR mandates reporting of all derivatives to TRs.

Public statement – de-prioritisation of supervisory actions on the obligation to publish RTS 27 reports after 28 February 2023 in light of the ongoing legislative procedure on the MiFID II/MiFIR review (ESMA35-43-3444)

On 14 December 2022, ESMA published a statement in relation to Article 27(3) of MiFID II. Article 27(3) requires execution venues to make available to the public reports related to the quality of execution of transactions on their venues. According to the amending Directive, RTS 27 reports are rarely read and do not enable investors and other users to make meaningful comparisons on the basis of the information they contain. As a consequence, the amending Directive sets out a temporary suspension of the periodic reporting obligation to the public on execution venues in Article 27(3) of MiFID II until 28 February 2023.

Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) 2017/1129, (EU) No 596/2014 and (EU) No 600/2014 to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises (Text with EEA relevance) (COM(2022) 762 final / 2022/0411 (COD))

On 7 December 2022, the European Commission published new proposals to further develop the EU's Capital Markets Union (CMU) aim to improve access to market-based sources of financing for EU companies. The proposal is to amend the following:

  • Prospectus Regulation (Regulation (EU) 2017/1129) (PR)
  • the Market Abuse Regulation (Regulation (EU) No 596/2014) (MAR)
  • the Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014) (MiFIR)

The proposal is part of the Listing Act package which aims to reduce the regulatory burdens and compliance costs that emerge at the IPO stage and the post-IPO stage, with a view to streamlining the listing process while ensuring an appropriate level of investor protection and market integrity. The proposed regulation is accompanied by two other legislative proposals related to directives:

  • A proposal for a directive amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 (the Listing Directive), which aims to both streamline and clarify listing requirements and to increase the low level of investment research on SMEs.
  • A proposal for a new directive on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choosing the appropriate governance structures when they list.

Practical guide - national rules on notifications of major holdings under the Transparency Directive (ESMA31-67-535)

On 15 December 2022, ESMA published a practical guide on national rules on notifications of major holdings under the Transparency Directive. The guide sets out general information, filing information, publication information and links to the standard forms for each country, including Ireland. It also includes the applicable national notification threshold percentages for closed-ended collective investment schemes and non-Irish issuers (5, 10, 15, 20, 25, 30, 50 and 75) and for all other issuers (3 and each 1% thereafter up to 100%).

Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

On 7 December, the third proposal from the European Commission set out a proposal for EMIR 3. EMIR provides for a framework exempting intragroup transactions from the clearing obligation under Article 4 and the margin requirements under Article 11 of the Regulation. This proposal is complemented by a proposal for a Directive introducing a limited number of changes to CRD, IFD and UCITS Directive as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions.

Final Report - draft guidelines on standard forms, formats and templates to apply for permission to operate a DLT Market Infrastructure (ESMA70-460-206)

On 15 December 2022, ESMA published its final report of the public consultation on draft guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure conducted between 11 July and 9 September 2022. The report summarises the responses and analysing how these have been taken into account. Annex II of the report contains the final Guidelines which set out the information to be provided.

The guidelines include templates to be used by market participants to apply for specific permission to operate any type of DLT market infrastructure (DLT MI) under the DLT Pilot Regulation (DLTR), namely: a DLT MTF, a DLT settlement system or a DLT trading and settlement system. They also include templates for the applicants DLT MIs to request limited exemptions from specific requirements under MiFIR, MiFID II or CSDR, provided they comply with certain conditions. Instructions on how to submit this information should be published by the national competent authorities on their website. The Guidelines will enter into force on 23 March 2023.

Proposal for a Directive of the European Parliament and of the Council amending Directives 2009/65/EU, 2013/36/EU and (EU) 2019/2034 as regards the treatment of concentration risk towards central counterparties and the counterparty risk on centrally cleared derivative transactions (COM(2022) 698 final / 2022/0404 (COD))

On 7 December 2022, the European Commission published its proposal to amend CRD, IFD and the UCITS Directive. The proposed EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. One proposal is to introduce the notion of CP in the UCITS Directive to eliminate counterparty risk limits for all derivative transactions that are centrally cleared by a CCP that is authorised or recognised under Regulation (EU) No 648/2012.

The proposed Directive introduces new provisions and proposes amendments to several articles in CRD and the Investment Firms Directive (IFD). The new provisions encourage institutions and investment firms, as well as their competent authorities, to systematically address any excessive concentration risk that may arise from their exposures towards CCPs and reflect the broader policy objective of a safer, more robust, efficient and competitive market for EU central clearing services.

To support the supervisory review and evaluation process (SREP), Article 1(3) of the proposed Directive amends the CRD to introduce a requirement for competent authorities to specifically assess and monitor institutions’ practices concerning the management of their concentration risk arising from exposures towards central counterparties as well as the progress made by institutions in adapting to the relevant policy objectives of the Union.

Commission Delegated Regulation (EU) 2022/2579 of 10 June 2022 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the information to be provided by an undertaking in the application for authorisation in accordance with Article 8a of that Directive (Text with EEA relevance)

On 29 December 2022, the Commission Implementing Regulation (EU) 2022/2579 of 10 June 2022 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the information to be provided by an undertaking in the application for authorisation in accordance with Article 8a of that Directive was published with effective date 18 January 2023.

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.

Date published: 12 January 2023