Financial Services Regulation and Compliance - Investment Firms June 2022

Domestic

Central bank client asset requirements

On 23 June 2022, the CBI published the final form of the third edition of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2022 (the CAR 2022). The CBI also published a draft guidance note on the Central Bank Client Asset Requirements (CAR) to assist investment firms and credit institutions compliance with the CAR contained in Part 6 of the CAR 2022. The revised CAR will be applicable to investment firms from 1 July 2023 and credit institutions from 1 January 2024.

The CAR as contained in Part 6 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 (the CAR 2017) will remain in force and effect until repealed by the CAR 2022 on 1 July 2023. The CBI will upload final guidance to the CBI website before the end of the transitional period.

European

EBA adopts decision on reporting of supervisory data from investment firms' competent authorities to the EBA

On 28 June 2022, the EBA adopted a decision on how competent authorities supervising investment firms under the Investment Firms Regulation (IFR) will transmit supervisory data to the EBA. The decision sets the scope, timing and modalities of the data submission via the European Centralised Infrastructure of Data. The first submission is expected by 31 December 2022.

Delegated regulation on fees relating to supervision by ESMA of data reporting service providers

On 17 June 2022, Commission Delegated Regulation (EU) 2022/930 supplementing the Markets in Financial Instruments Regulation (MiFIR) was published in the Official Journal of the European Union (OJEU). The delegated regulation specifies the fees relating to the supervision by ESMA of data reporting service providers, the payment modalities of the fees and transitional provision for 2022 and 2023.

ESMA annual report 2021

On 15 June 2022, ESMA published its annual report 2021. The report identifies ESMA's key achievements in 2021 and highlights the most significant elements of ESMA's work in 2021, particularly the development of the regulatory framework for sustainable finance and the risks and opportunities arising from the digitalisation of markets especially for retail investors. ESMA's major areas of focus in 2021 included:

• protecting investors where their growing engagement in sustainable and digital finance risks them being subject to greenwashing and scams
• ensuring effective and converged EU supervision
• to supporting the renewed focus on developing a true capital markets union

ESAs propose extending temporary exemptions regime for intragroup contracts during EMIR review

On 10 June 2022, the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published two final reports with draft regulatory technical standards (RTS) proposing to amend the commission delegated regulation on bilateral margin requirements and the commission delegated regulations on the clearing obligation. Both draft RTS proposes to extend the current temporary exemptions regime under the bilateral margin delegated regulation and the clearing obligation delegated regulation for intragroup contracts by three years. This will accommodate the ongoing assessment of third-country equivalence and allow for a review of the intragroup exemptions framework under the EMIR review. Both draft RTS have been submitted to the European Commission for endorsement. Following this, they are subject to non-objection by the European Parliament and the Council.

ESMA proposes €1billion increase of the commodity derivatives EMIR clearing threshold

On 3 June 2022, ESMA published a final report on the increase of the commodity derivatives EMIR clearing threshold. The report proposes to increase the threshold from €3bn to €4bn. The report also considers the need for structural changes in the way the threshold should be calculated, the time that it will take for these changes to be effective, and the exceptional circumstances that non-financial counterparties are facing.

ESMA publishes technical standards to suspend the CSDR buy-in regime

On 2 June 2022, ESMA published a final report on amending the regulatory technical standards on settlement discipline to postpone the application of the CSDR mandatory buy-in regime for three years. The proposed amendment is based on the expected changes to the CSDR buy-in regime presented in the Commission’s legislative proposal for the CSDR Review and on the amendment made to CSDR through the DLT Pilot Regulation. The draft RTS is submitted to the European Commission for endorsement. Following this, they are subject to non-objection by the European Parliament and the Council.

ECB opinion on proposed amendments to MiFIR

On 1 June 2022, the ECB published its opinion on the proposed amendment to the Markets in Financial Instruments Regulation (MiFIR) as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising trading obligations and prohibiting receiving payments for forwarding client orders. The ECB made specific observations on the following:

• introduction of the proposed enhanced regime for the 'consolidated tape'
• streamlining of the pre-trade transparency regime for equities
• restriction of payment for order flow
• ending open access for exchange-traded derivatives
• other MiFIR provisions which could be further improved

ESMA publishes results of its call for evidence on ESG ratings

On 27 June 2022, ESMA published a letter to the European Commission providing its findings from the call for evidence to gather information on the market structure for ESG rating providers in the European Union (EU). The letter identified a number of key characteristics and trends from the responses received:

1. ESG rating providers – the structure the market is split between a small number of very large non-EU entities on one hand, and a large number of significantly smaller EU entities on the other.
2. Users of ESG ratings – the users are typically contracting for these products on an investor-pays basis from several providers simultaneously. The most common shortcomings identified by the users were a lack of coverage of a specific industry or a type of entity, insufficient granularity of data, and a lack of transparency around methodologies used by ESG rating providers.
3. Entities covered by ESG ratings – dedicate at least some level of resourcing to their interactions with ESG rating providers, although the amount largely depends on the size of the rated entity itself.

The feedback received is indicative of an immature but growing market that, following several years of consolidation, has seen the emergence of a small number of large non-EU headquartered providers.

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