Financial Services Regulation and Compliance - Investment Firms Jan 2022
Financial Services Regulation and Compliance - Investment Firms Jan 2022
The CBI issues statement to MiFID investment firms authorised to provide MiFID activities 3 and/ or6
On 26 January 2022, the CBI issued a statement to all MiFID investment firms authorised to provide MiFID investment services of dealing on own account or underwriting of financial instruments on a firm commitment basis. This statement has been issued following the publication of a package of two final draft RTS relating to the reclassification of MiFID investment firms as credit institutions by the EBA in December 2021.
The CBI has emphasised that affected MiFID firms should give due regard to both the threshold reporting requirements and the threshold calculation methodology for determining the need for reclassification of an investment firm as a credit institution set out in these publications. Any firms that anticipate meeting the threshold triggering the requirement to seek re-authorisation as a credit institution are expected to:
engage with the Central Bank regarding their re-authorisation within 3 months of the date of entry into force of the Delegated Act and
submit an application for re-authorisation as a credit institution within 6 months of the date of entry into force of the Delegated Act.
Ireland transposes the MiFID II 'Quick-Fix' Directive
The MiFID II ‘Quick Fix’ Directive (the Directive) was published in the Official Journal on 11 January 2022. Its dual aim is to support the economic recovery after the Covid-19 pandemic and to remove unnecessary administrative burdens for firms. Under the Directive, EU Member States have to implement the ‘Quick Fix’ amendments into their national laws by 28 February 2022. The EU (Markets in Financial Instruments) Amendment Regulations 2022 transpose the Directive into Irish law and will come into operation on 28 February 2022.
Some of the key changes introduced under the Directive include:
the default method of communication between investment firms and clients will be electronic
professional clients and eligible counterparties are exempted from the costs and charges disclosure requirements, both ex-ante and ex-post, except for investment advice or portfolio management services
financial instruments that are exclusively marketed or distributed to eligible counterparties will no longer be subject to product governance requirements and
publication of best execution reports by trading venues, systematic internalisers and other execution venues will be temporarily suspended until 28 February 2023.
ESMA publishes guidance on appropriateness and execution-only requirements under MiFID II
On 3 January 2022, ESMA published the final report on its guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements. Under MiFID II, investment firms providing non-advised services are required to request information on the knowledge and experience of clients or potential clients to assess whether the investment service or product envisaged is appropriate, and to issue a warning in case the investment service or product is deemed inappropriate. The execution-only framework allows for an exemption to this assessment in certain conditions, including that the firm issues a warning to the client.
The purpose of the guidelines is to enhance clarity and to foster convergence in the application of the appropriateness and execution-only requirements. The guidelines cover a number of aspects of the appropriateness process, including the information to be provided to clients about the purpose of the appropriateness assessment, to the matching of clients with appropriate products and the effectiveness of warnings. Moreover, other related requirements are clarified, such as the execution-only exemption and record-keeping and controls.
National competent authorities will have two months to confirm to ESMA if they comply or intend to comply.
ESMA consults on the review of MiFID II Suitability Guidelines
ESMA has launched its consultation (the consultation) on certain aspects of suitability requirements under the Markets in Financial Instruments Directive (MiFID II), in order to update its guidelines following amendments to MiFID II relating to sustainability. The Consultation follows the adoption by the European Commission of the changes to the MiFID II Delegated Regulation (the Delegated Regulation) to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firm.
The main amendments introduced to the Delegated Regulations and reflected in these proposed guidelines are as follows:
collection of information from clients on sustainability preferences: firms will need to collect information from clients on their preferences in relation to the different types of sustainable investment products to what extent they want to invest in these products
assessment of sustainability preferences: once the firm has identified a range of suitable products for a client, in accordance with the criteria of knowledge and experience, financial situation and other investment objectives, it shall identify - in a second step - the product(s) that fulfil the client’s sustainability preferences and
organisational requirements: firms will need to give staff appropriate training on sustainability topics and keep appropriate records of the sustainability preferences of the client (if any) and any updates of these preferences.
The consultation closes on 27 April 2022. ESMA will then consider the feedback it receives to the consultation in Q2 2022 and expects to publish a final report in Q3 2022.
President of the European Council Charles Michel Remarks at the European Investment Bank Annual Economics Conference 2022
On 12 January 2022, President of the European Council, Charles Michel, delivered his remarks at the European Investment Bank (EIB) Annual Economics Conference.
President Michel spoke on the concept of sovereignty, which is a priority in the EC's agenda. He noted the impact that COVID-19 has had on the European Union, and how the EU is now "… moving away from managing the crisis to consolidating a sustainable, innovative, and inclusive recovery". This shift in focus will strengthen both economic and social resilience. The recovery from the pandemic also provides a unique opportunity for transformation and innovation. The EC stated that to capitalise on this opportunity, a retooling to promote further digital improvements, and switching to a carbon-neutral growth paradigm is required. Rapid progress on green finance and increased collaboration between public and private sectors are necessary to facilitate the twin transition.
In order to sustain economic recovery and to strengthen the economic base of the European Union, President Michel stated there were three crucial areas of focus. The first is the empowerment of the internal market. The second is to channel money into the economy, in line with the EU's priorities. The third and final area is economic governance. It should reinforce the EU's macroeconomic resilience, striking the right balance between sustainability and stabilisation.
ESMA publishes guidelines on delayed disclosures under MAR
On 5 January 2022, ESMA published its Final Report on the amendment of the Market Abuse Regulation (MAR) guidelines on delayed disclosure in relation to prudential supervision. The guidelines are aimed at providing clarity and enhancing legal certainty and should assist issuers in conducting their assessment as to whether they meet the conditions to delay inside information in accordance with MAR.
The guidelines also introduce clarifications on the institutions’ case-by-case assessment as to whether they would be in possession of inside information in relation to the institution-specific Supervisory Review and Evaluation Process (SREP) decisions received from their prudential competent authority, with particular reference to the Pillar 2 Capital Requirements and Capital Guidance.
The Guidelines are currently in the translation stage, after which the regular comply or explain procedure will be carried out ahead of the full application of the Guidelines.