Financial Services Regulation and Compliance - Investment Firms Mar 2021
Financial Services Regulation and Compliance - Investment Firms Mar 2021
CBI welcomes migration of Ireland’s securities settlement market from UK to Belgium
The Central Bank of Ireland (CBI) has released a statement welcoming the successful migration of Ireland’s securities settlement from Euroclear UK to Euroclear Bank Belgium with effect from Monday 15 March 2021. Euroclear Bank Belgium was selected by Irish market participants as the preferred provider of long-term central securities depository for the Irish market. The migration was an industry-led decision in keeping with the CBI's objective of ensuring that the financial system supports the best interests of consumers and the economy as a whole.
In relation to the migration, Deputy Governor Sharon Donnery stated that; "The Central Bank is responsible for supervision of regulated entities including the market operator and firms engaged in trading Irish equities. The successful migration ensures the continued settlement of trades in Irish securities traded on Euronext Dublin. The Central Bank has worked closely with industry participants since this migration project began and the Central Bank welcomes Monday's successful migration, which required significant commitment from Euroclear, Euronext and all Irish market participants to ensure the successful delivery of the project”.
COVID-19 - Prudential Regulatory Flexibility Measures: Securities Markets, Investment Management, Investment Firms and Fund Service Providers
The CBI has issued a statement outlining updates to its approach to supervisory flexibility for investment firms, fund service providers and market operators throughout the duration of the COVID-19 pandemic. The update notes that the publication of its feedback statement arising from Consultation Paper 130 (CP130), Treatment, Correction and Redress of Errors in Investment Funds which was due to be published by the end of Q1 has been delayed and that a revised date of publication will be communicated in due course.
ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments
The European Securities and Markets Authority (ESMA) has published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from 1 April 2021 until 31 March 2022. The transparency calculations are based on the data provided to Financial Instruments Transparency System (FITRS) by trading venues and approved publication arrangements in relation to the calendar year 2020. The available calculations include:
the liquidity assessment as per Articles 1 to 5 of CDR 2017/567
the determination of the most relevant market in terms of liquidity as per Article 4 of CDR 2017/587 (RTS 1)
the determination of the average daily turnover relevant for the determination of the pre-trade and post-trade large in scale thresholds
the determination of the average value of the transactions and the related the standard market size
the determination of the average daily number of transactions on the most relevant market in terms of liquidity relevant for the determination of the tick-size regime
At present there are 1,432 liquid shares and 982 liquid equity-like instruments other than shares, subject to MiFID II/MiFIR transparency requirements.
ESMA suggest that market participants monitor the release of the transparency calculations for equity and equity-like instruments on a daily basis to obtain the estimated calculations for newly traded instruments and the four-weeks calculations applicable to newly traded instruments after the first six-weeks of trading.
ESMA supports increasing corporate transparency through the creation of ESAP
ESMA has submitted a response and accompanying letter to the European Commission’s targeted consultation on the European Single Access Point (ESAP). ESMA has recommended a phased approach which prioritises financial and non-financial information of public companies. Mr Steven Maijoor, Chair, noted that:
“A single access point for information about companies is one of the key missing components of the Capital Markets Union. ESMA is fully supportive of the ambition to set up the ESAP as it will increase investor trust in companies across the EU and lower the costs of capital."
ESMA has stated that in order to reap the full benefit of the ESAP, the information included in the single database must be capable of comparison in terms of content and must be provided in a structured, machine readable format. ESMA has therefore recommended that structured data formats be used where appropriate. ESMA's recommendations are in keeping with the final recommendations of the High Level Forum on the Capital Markets Union on the ESAP and by the European Parliament Resolution on the CMU.
EBA issues new supervisory reporting and disclosures framework for investment firms
The EBA has published final draft Implementing Technical Standards (ITS) on the supervisory reporting and disclosures of investment firms. The final draft ITS form part of the phase one mandates of the EBA roadmap on investment firms, and aim to ensure the proportionate implementation of the new prudential framework for investment firms while taking the different activities, sizes and complexity of investments firms into consideration.
The ITS provide guidance in relation to the calculation of own funds, levels of minimum capital, concentration risk, liquidity requirements and the level of activity in respect of small and non-interconnected investment firms. The ITS also set out a separate set of templates for small and non-interconnected investment firms which require them to provide information that is proportionate to their size and complexity. A standardised set of templates for the disclosures of own funds is also included in the ITS. A single set of standards which integrates Pillar 3 disclosures, supervisory reporting requirements and standardised formats and definitions will also be issued by the EBA in order to enhance consistency between reporting and disclosure requirements.
ESMA to allow decision on reporting of net short position of 0.1% and above to expire
ESMA has decided against renewing its decision to require holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches, exceeds or falls below 0.1% of the issued share capital. The measure has applied since 16 March 2020 and expired on 19 March 2021. On the basis that GDP forecasts have demonstrated some optimism for recovery and that market volatility has decreased and the main EU stock indices close to pre-pandemic levels, ESMA is of the opinion that the current market situation no longer constitutes an emergency situation as required by the Short Selling Regulation in order to maintain the measure.
From 20 March 2021 onwards, positions holders will only be required to send notifications if they reach or exceed the 0.2% threshold again, any outstanding net short position between 0.1% and 0.2% will not need to be reported. The EFTA Surveillance Authority has also decided against renewing their current measure applicable to EEA EFTA States' markets and as such, this will also expire on 19 March 2021.
ESMA issues statement on supervisory approach to position limits
ESMA has published a public statement in relation to its supervisory approach to position limits for commodity derivatives. The aim of the statement is to clarify the application of position limits and coordinate the supervisory actions of National Competent Authorities (NCAs), ahead of the legislative change introduced by the MiFID II Recovery Package for commodity derivatives which will start to apply in early 2022.
Under the amended legal provisions, position limits will only continue to apply to agricultural commodity derivatives and critical or significant commodity derivatives. Positions which result from transactions entered into to fulfil obligations to provide liquidity on a trading venue and which are objectively measureable will also be exempt from position limits. In light of the upcoming legislative amendments and other potential impacts on position limits, ESMA has outlined its expectations that NCAs do not prioritise:
supervisory actions towards entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots
supervisory actions towards positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as per MiFID II
ESMA updates Brexit statement on provisions of the Benchmark Regulation (BMR)
ESMA has updated its statement on the application of key provisions of the Benchmark Regulation (BMR). The update relates to statements issued by ESMA in March and October 2019 and October 2020 and sets out the EU's approach towards the regulation of UK-based third country benchmarks as well as UK endorsed and recognised benchmarks.
ESMA consults on simplified supervisory fees for Trade Repositories
ESMA has launched a public consultation in relation to the simplification of supervisory fees for trade repositories (TRs) under EMIR and SFTR. The proposed amendments aim to simplify the:
general approach to fees determination
calculation of turnover and of annual supervisory fees
calculation of fees for registration, for extension of registration and in the case of concurrent applications
calculation of fees for recognition and on-going supervision of third-country TRs
the payment and reimbursement modalities
The consultation will run until 24 April 2021 and the responses received will form part of the technical advice which ESMA will provide to the European Commission. The final report will be published by ESMA in Q2 2021.
ESMA publishes technical advice on fines and penalties for benchmark administrators
ESMA has published its technical advice to the European Commission on procedural rules for imposing fines and penalties on Benchmark Administrators under its direct supervision. The advice addresses comments received by ESMA in response to its consultation paper and provides specific guidance in relation to the following procedural issues:
the right to be heard by the independent investigation officer (IIO)
the content of the file to be submitted by the IIO
access to the file
the procedure for imposing fines
the adoption of interim decisions
the limitation periods for imposition and enforcement of penalties;
the collection of fines and penalties
the relevant calculation periods
The advice complements the existing enforcement framework regarding trade repositories and credit rating agencies and is based on the practical experience ESMA has gained in implementing this framework. Technical advice in relation to procedural rules for imposing fines and penalties on TC-CCPs which was given to the Commission by ESMA and published on 31 March 2020 has also been taken into account.
ESMA updates Q&A on inducements
ESMA has updated its Q&A on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). The Q&As have been updated to include an additional Q&A in relation to the conditions specifying when an inducement can be considered as designed to enhance the quality of the relevant service to the client. The update provides guidance on the application of Article 11(2)(a) of the MiFID II Delegated Directive, notably the condition that the inducement is justified by the provision of an additional or higher-level service to the relevant client which is proportional to the level of inducements received.
ESMA advises the European Commission on the application of sanctions under MiFID II/MiFIR
ESMA has published its advice to the European Commission on the application of administrative and criminal sanctions under MiFID II/MiFIR. The advice discusses the application of such sanctions and notes that the administrative sanctions set out for infringements of MiFID II/MiFIR requirements require further harmonisation. The technical advice also proposes amending the MIFID II requirements for NCAs to disclose and report information on sanctions and measures, the MIFID II requirement for NCAs to liaise with judicial authorities to gather information on criminal sanctions and the current requirements on MiFID II precautionary measures. In addition, the technical advice also suggests that settlement powers should be included among the range of sanctions and measures of Member States’ NCAs in order to increase the efficiency of their enforcement proceedings.
ESMA proposes amendments to MiFIR transactions and reference data reporting regimes
ESMA has published the final report on its review of transaction and reference data reporting obligations under MiFIR. The report sets out ESMA's recommendation for amendments to MiFIR transactions and reference data reporting regimes with the objective of simplifying the current reporting regimes whilst ensuring quality and usability of the reported data. The proposed amendments include the following:
the replacement of the trading on a trading venue (TOTV) concept with the SI approach for OTC derivatives, taking into account the conclusions of ESMA’s final report on the transparency regime for non-equity instruments and the trading obligation for derivatives
the removal of the short sale indicator
the alignment with reporting regimes such as MAR, EMIR and the Benchmark Regulation
the reliance on international standards, including LEIs, ISINs and CFIs
the inclusion of three additional data elements with a view to harmonise the way they are reported and avoid inconsistent and duplicative reporting of the same information at the national level. In particular, these are indicators for: