Financial Services Regulation and Compliance - Investment Firms June 2021
Financial Services Regulation and Compliance - Investment Firms June 2021
The CBI publishes feedback statement following consultation on competent authority discretions under IFD/IFR
Investment firms are now subject to the Investment Firms Directive and Regulation (IFD/IFR), with supervision of systemic firms being taken over by the ECB. Such firms must now apply for a banking licence in order to address the specific activities and risks posed by investment firms.
The CBI has published its feedback statement from the consultation on competent authority discretions under the IFD and the IFR. The following is a summary of the feedback statement:
the CBI will issue a notice to include details about the manner in which the CBI will exercise these discretions
the CBI intends to revise reporting requirements for investment firms from 1 July 2021
the CBI confirmed that AIFMs and UCITS ManCos with MiFID II top ups should continue to comply with their current prudential regime pending further engagement with the CBI on the prudential regime applying
the CBI will apply discretion on a case by case basis on whether to apply the Capital Requirements Directive to firms with consolidated assets of €5-15bn
the CBI will exercise the discretion under IFR Art 6(3) to exempt firms from Part 5 of the IFR on a case by case basis and will communicate any additional criteria on a case by case basis following a request to the CBI to exercise this discretion
Class 3 firms will be expected to undertake a regular and proportionate exercise to maintain adequacy of the quantity, quality and distribution of internal capital held
the CBI may exercise the discretion under Article 15(4) IFR where there is a material change in the activities of an investment firm relative to a previous reporting period
EBA and ESMA publish provisional list of instruments and funds for the smallest investment firms
The EBA, jointly with ESMA, published a provisional list of additional instruments and funds that competent authorities may allow to use as own funds for some of the smallest investment firms. The objective of this list is to provide guidance to competent authorities and investment firms before the application of the Investment Firm Regulation requirements, as of 26 June 2021. Information provided by national competent authorities (NCAs) across the EU has formed the basis of this provisional list. Depending on their nature, instruments and funds of investments firms will be allocated to this new list or the existing Common Equity Tier 1 list.
ESMA publishes Final Report on the MiFIDII/MiFIR obligations on market data
On 1 June 2021 ESMA published its final report on guidelines on the MiFIDII/MiFIR obligations on market data. The guidelines that are set out in the final report will ensure better uniform application of the MiFIDII/MiFIR obligations. The guidelines will apply to trading venues, national competent authorities, approved publication arrangements, consolidated tape providers and systematic internalisers. The guidelines outline the requirements to firstly publish market data on a reasonable commercial basis and secondly, to make market data available free of charge 15 minutes after it is published. The guidelines are set to apply from 1 January 2022.
ESMA consults on guidelines for data transfer between trade repositories under EMIR and SFTR
ESMA launched a consultation on amendments to its guidelines on data transfer between trade repositories under EMIR and new guidelines on data transfer between trade repositories under the Securities Financing Transactions Regulation (SFTR). The proposed changes to the data transfer guidelines under EMIR and the new guidelines under SFTR propose the following:
to enhance the quality of data that is available to authorities
to ensure that the competitive multiple trade repositories environment is guaranteed
to safeguard a consistent and harmonised way to transfer records from one trade repository to another
EBA consults on technical standards on crowdfunding service providers
On 4 June 2021 the EBA published a consultation paper on draft regulatory technical standards (RTS) outlining the information that crowdfunding service providers (CSPs) that offer individual portfolio management of loans need to provide to investors in regards to the method to assess credit risk and on each individual portfolio. The draft RTS also detail the policies, procedures and organisational arrangements that CSPs need to have in place in regards to any contingency fund they may offer to investors.
This consultation process runs until 4 September 2021.
ESMA launches 2021 Central Counterparties Stress Test
On 7 June 2021 ESMA published the framework for its fourth stress test for central counterparties (CCPs) as required by EMIR. The 2021 Stress Test is to focus on the following components: credit stress, concentration risk, reverse credit stress and operational risk. In addition, ESMA will also provide additional analysis of CCPs' resources and participants. The aim of the stress test is to test a CCP's resilience to macroeconomic scenarios that may have a global impact.
EBA launches second consultation on its technical standards on the calculation of the €30bn threshold for investment firms
On 7 June 2021 the EBA launched a second consultation on its draft regulatory technical standards (RTS) on the calculation of the €30bn threshold for investment firms. The aim of this consultation is to evaluate the level playing field concerns that were raised by the industry, which focused on geographical constraints of some undertakings and concerns in relation to proportionate and consistent methodology for the calculation of the thresholds.
This consultation process runs until 17 July 2021.
Dark-pool financial trading venues may face data tax
The European Commission has suggested that off-market trading venues may have to pay an additional data tax. The comments were made by Commissioner Mairead McGuinness as the European Commisison seeks to implement a new consolidated tape information service. There is a concern that less well-regulated venues are taking advantage of the compulsory information furnished by conventional stock markets to determine reference prices for trades without contributing to it.
The new service aims to encourage transactions onto more regulated and transparent exchanges. It is also hoped that the new tape service will help smaller investors to spot the best prices amongst exchanges. Commissioner McGuinness noted that "remuneration of the revenue generated by the consolidated tape will go to the data contributors that operate pre-trade transparent order books". However, Commissioner McGuinness suggested that not only will off-market trading venues be potentially excluded from this remuneration, they may also be required to pay a fee to the tape.
The European Commission is due to publish legislative proposals on a consolidated tape service by the end of this year.
ESMA publishes its 2020 Annual Report
On 16 June 2021 ESMA published its latest annual report. The report sets out ESMA's achievements including its work on the following:
promoting supervisory convergence, for example the work on the first common supervisory action on the application of the MiFID II requirements on the assessment of appropriateness and execution requirements related to investor protection
assessing risks to investors, markets and financial stability such as ensuring the quality of data reported to ESMA
completing a Single Rulebook for EU financial markets
directly supervising specific financial entities such as establishing the Central Counterparty Supervisory Committee
ESMA sees a prolonged period of risk from market corrections
On 3 June 2021 ESMA published its first risk dashboard for 2021. The main areas of risk for EU financial markets that the risk dashboard outlines is a sudden risk reassessment during the general decoupling of securities prices from economic fundamentals. Valuations in EU financial markets are still highly sensitive to events as shown by the market movements to GameStop and the effect that the slow roll-out vaccines had on equity prices. It was also outlined by ESMA that credit risk is likely to rise further due to the increasing corporate and public debt levels. ESMA noted that the progression of these risks will depend on the market expectations on monetary and fiscal policy support and the pace of the economic recovery.
EBA publishes its final draft technical standards on supervisory disclosure under the Investment Firms Directive
On 25 June 2021 the EBA published its final draft implementing technical standards (ITS) on information on supervisory approaches and aggregate statistical data in regards to the new prudential requirements that competent authorities will have to publicly disclose for all types of investment firms that are authorised under MiFID. Competent authorities must begin disclosing this information in June 2022. The disclosed information relates to the following areas:
options and discretions in the application of the prudential requirements
the text of laws, regulations, administrative rules and general guidance adopted in each Member State
criteria and methodologies of the supervisory review and evaluation process (SREP)
aggregated statistical data on prudential requirements