Financial Services Regulation and Compliance - Investment Firms May 2020
Financial Services Regulation and Compliance - Investment Firms May 2020
Central Bank of Ireland updates prudential regulatory flexibility measures relating to securities markets, investment management, investment firms, and fund service providers
The Central Bank of Ireland (CBI) has updated its communication concerning securities markets, investment management, investment firms, and fund service providers on the prudential regulatory measures adopted for entities in that sector in response to COVID-19 (first announced in April 2020 and covered in our April bulletin).
The communication is updated to take account of the publication of the final report on the EMIR RTS on various amendments to the bilateral margin requirements in view of the international framework by the European Supervisory Authorities on 4 May 2020. The CBI confirmed that, in accordance with paragraph 44 of the final report, it will apply the EU framework in a risk-based and proportionate manner as regards to:
the relevant deadlines for bilateral margin requirements
the treatment of physically settled FX forward and swap contracts
equity option contracts
the implementation of the last phase of the initial margin requirements until the amended RTS enters into force
ESMA reminds firms of conduct of business obligations under MiFID II in the context of increasing retail investor activity
On 6 May 2020, the European Securities and Markets Authority (ESMA) issued a public statement reminding investment firms of their conduct of business obligations under MiFID II (the Markets in Financial Instruments Directive) in the context of increasing retail investor activity during COVID-19.
In the statement, ESMA points out that heightened uncertainty due to COVID-19 has led to high market volatility and an increase in market, credit and liquidity risks. In this context, ESMA believes that firms now have even greater duties when providing investment or ancillary services to investors, especially when they are new or have limited investment knowledge or experience. Firms are reminded of their obligation to act honestly, fairly and professionally in accordance with the best interests of their clients and to comply all relevant conduct of business and related organisational obligations under MiFID II, including product governance, information disclosure, suitability and appropriateness.
ESMA consults on SME growth markets
ESMA has launched a consultation on the functioning of the small and medium-sized enterprises (SME) growth market regime in the EU and on two draft technical standards, introduced by the amendments to the Market Abuse Regulation (MAR) for the promotion of the use of SME growth markets.
The consultation paper provides an assessment of the state of play of the SME growth market regime in the EU and seeks stakeholders' views on amendments proposed by ESMA to the regime. It also seeks views on suggested initiatives to improve the attractiveness of the SME growth market from issuers', investors', and venues' perspectives. The consultation paper also presents ESMA's proposal for the draft regulatory technical standards on liquidity contracts and the draft implementing technical standards specifying the format of the insider list.
The consultation is open until 15 July 2020. ESMA will then develop the final reports under MiFID II and MAR, taking into consideration the feedback received to the consultation paper. ESMA intends to submit the MiFID II final report to the European Commission by the end of 2020 and the MAR final report in the autumn.
ESMA issues latest double volume cap data
On 8 May 2020, ESMA updated its public register with the latest set of double volume cap (DVC) data under MiFID II. The update includes DVC data and calculations for the period 1 April 2019 to 31 March 2020 as well as updates to already published DVC periods.
The number of new breaches is 53:43 equities for the 8% cap, applicable to all trading venues, and 10 equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 13 May 2020 to 12 November 2020. The instruments for which caps already existed from previous periods will continue to be suspended.
In addition, ESMA highlights that none of the previously identified breaches of the caps proved to be incorrect thus no previously identified suspensions of trading under the waivers had to be lifted. As of 8 May 2020, there is a total of 343 instruments suspended.
ESRB makes recommendations on liquidity risks in investment funds
The European Systemic Risk Board (ESRB) has issued a new recommendation as part of a set of actions to address the COVID-19 crisis from a macroprudential perspective. The recommendation suggests that relevant NCAs (national competent authorities) across the EU, coordinated by ESMA, undertake focused supervisory engagement with investment firms that have significant exposures to less liquid assets. That they focus on corporate debt and real estate, to assess the preparedness of these two areas of the investment funds sector to potential adverse shocks, including any potential resumption of significant redemptions and/or an increase in valuation uncertainty. The ESRB also recommends ESMA to report to the ESRB on its analysis and the conclusions reached regarding the preparedness of the relevant investment funds.
ESMA calls for transparency on COVID-19 effects in half-yearly financial reports
ESMA has published a public statement addressing the implications of the COVID-19 pandemic on the half-yearly financial reports of listed issuers. The statement provides recommendations on areas of focus identified by ESMA and highlights:
The importance of providing relevant and reliable information, which may require issuers to make use of the time allowed by national law to publish half-yearly financial reports while not unduly delaying the timing of publication.
The importance of updating the information included in the latest annual accounts to adequately inform stakeholders of the impacts of COVID-19, in particular in relation to significant uncertainties and risks, going concern, impairment of non-financial assets and presentation in the statement of profit or loss.
The need for entity-specific information on the past and expected future impact of COVID-19 on the strategic orientation and targets, operations, performance of issuers as well as any mitigating actions put in place to address the effects of the pandemic.
The public statement is also applicable to financial statements in other interim periods when IAS 34 Interim Financial Reporting is applied. It calls on the management, administrative and supervisory bodies, including audit committees, of issuers and, where applicable, their auditors, to take due consideration of the recommendations included within the statement. ESMA further emphasises the role of audit committees in promoting high-quality half-yearly financial reports.
ESMA updates Q&As on MiFID II investor protection and intermediaries
On 28 May 2020, ESMA updated its Q&As on the implementation of investor protection topics under MiFID II / MiFIR (the Market in Financial Instruments Directive). A new Q&A (section 12, question 7) has been added to clarify the application of the MiFID definition of "acceptable minor non-monetary benefits."
ESMA updates Q&As on MiFID II and MIFIR transparency and market structures topics
On 29 May 2020, ESMA updated its Q&As regarding market structures and transparency issues under MiFID II and MiFIR to provide clarification on the following topics:
the default liquidity status, SSTI and LIS thresholds of non-equity instruments
the publication of transactions in an aggregated form
the conversion of LIS/SSTI thresholds in lots [amendments to an existing ESMA Q&A]
multilateral systems facilitating the execution of repurchase agreement (repo)transactions