Financial Services Regulation and Compliance - Investment Firms December 2023
Domestic
CBI issues Dear CEO letter on Common Supervisory Action on MiFID II Costs and Charges Requirements
On 1 December 2023, the Central Bank of Ireland (CBI) issued a ‘Dear CEO’ letter on the European Securities and Markets Authority's (ESMA) Common Supervisory Action (CSA) on Market in Financial Instruments (MiFID) II Costs and Charges Requirements. The letter provided feedback to industry on the findings of its review of the application of the costs and charges disclosure requirements under the MiFID Regulations and MiFID II.
As part of its participation in the CSA, the CBI completed a thematic review which examined MiFID investment firms’ and credit institutions’ application of the relevant costs and charges disclosure requirements. The CBI’s findings from the thematic review were then submitted to ESMA and are included in the public statement issued by ESMA. The findings of ESMA’s public statement are consistent with the findings of the CBI’s thematic review and the CBI have advised that the ‘Dear CEO’ letter should be read in conjunction with ESMA’s statement.
The key findings arising from the ESMA CSA on costs and charges related principally to the following three discrete areas:
- aggregated costs
- itemised breakdowns
- third parties and third-party payments
The CBI has summarised its findings on these three areas in a schedule to the letter, along with some good practices observed and its expectations.
In light of its findings, the CBI has requested that all authorised MiFID investment firms and credit institutions providing MiFID services review and document their costs and to complete such a review by 31 March 2024, as well as a discussion of the action plan and approval by the board.
The CBI has also requested that in circumstances where in scope firms have received formal mitigating actions, those firms should consider the ESMA public statement and the letter in conjunction with it.
European
ESMA publishes updated Q&A document on MiFID II and MiFIR
On 15 December 2023, ESMA published an updated question and answer (Q&A) document on MiFID II and the revised Markets in Financial Instruments Regulation (MiFIR). The Q&A document includes one new Q&A in respect of foreign currency and an updated answer to a previous question on costs and charges.
New Q&A foreign currency (Q&A No.35)
The new question relates to Article 50(3) of the MiFID II Delegated Regulation which stipulates that where any part of the total costs and charges is to be paid in or represents an amount of foreign currency, investment firms must provide an indication of the currency involved and the applicable currency conversion rates and costs. Accordingly, the question raised is "How should investment firms indicate the parts of the total costs and charges paid in or represented in an amount of foreign currency in their ex-ante and ex-post costs and charges disclosure?"
The response specifies how, in accordance with Article 50(3), firms should disclose such costs and notes that firms are required to provide aggregated ex-ante information on all costs and charges. Firms should also indicate the currencies involved, the applicable currency conversion rates and currency conversion costs, irrespective of whether the client has requested an itemised breakdown. The response also goes into further detail on ex-ante and ex-post disclosure of costs and charges.
Updated Q&A costs and charges (Q&A No. 13)
An updated response was published in respect of question 13 on costs and charges which asks "When providing information of costs and charges to clients, on which basis should costs be aggregated? What is the level of aggregation that firms need to apply?
The updated responses clarifies that where firms use an all-in fee, the all in-fee should be disclosed under the relevant cost item. For all other cost items covered by the all in-fee (or not charged at all), the firm should indicate a ‘zero’. For costs not covered by the all-in fee. the costs incurred shall be disclosed in the relevant category. It is further noted that in case of all-in fees, in accordance with Article 50(2) of the MiFID II Delegated Regulation firms must disclose separately any third-party payments received in their aggregated disclosure of costs and charges.
ESMA publishes discussion paper on MiFID II investor protection topics linked to digitalisation
On 14 December 2023, ESMA published a discussion paper on the digitalisation of retail investment services and related investor protection considerations. The paper explores the evolving landscape of retail investments and discusses main trends in digitalisation that are linked to the MiFID II investor protection topics. ESMA sets out draft recommendations on numerous issues which included the following:
- layering and accessibility of information
- digital marketing communications and practices
- digital engagement practices such as nudging techniques and dark patterns
- use of influencers
- social features of investment apps
The deadline for comments on the discussion paper is 14 March 2024.
ESMA presents methodology for climate risk stress testing and analysis of the financial impact of greenwashing controversies
On 19 December 2023, ESMA published two articles: one outlining an approach to modelling the impact of asset price shocks from adverse scenarios involving climate-related risks, the other exploring the use of ESG controversies for the purpose of monitoring greenwashing risk.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 17 January 2024