Financial Services Regulation and Compliance - Investment Firms May 2021
CBI issues Dear CEO letter to algorithmic trading firms
The CBI issued a Dear CEO letter to algorithmic trading firms on 11 May, following a thematic review of how such firms have managed the control frameworks required by RTS C(2016) 4476 ("RTS6"). The main concerns of the CBI are the risks around IT failures. The thematic review focused on governance, development and testing, risk measurement and control, processes and controls and trade lifecycle management. The thematic review found an over-reliance on service providers, insufficient formality on key documentation, lack of clearly defined roles and responsibilities.
Department of Finance publishes a feedback statement on the IFD public consultation
The Department of Finance has published the feedback statement on the IFD public consultation. In summary, the Department has:
- designated the CBI as the NCA for IFD/IFR
- opted not to exercise the discretion to place additional restrictions on the types of instruments for the purposes of variable remuneration
- set the threshold for applying the restrictions on variable remuneration for firms with at least €300m of on and off-balance sheet assets, however the NCA may specify a lower threshold
- opted not to exercise the discretion in relation to an exemption of staff with a bonus below a certain threshold
Crowdfunding service providers exempt from MiFID Regulations
The European Union (Markets in Financial Instruments) (Amendment) Regulations 2021 have been published and will come into effect on 10 November 2021. The 2021 Regulations amend Regulation 4 of the European Union (Markets in Financial) Instruments) Regulations 2017 (MiFID II) to provide that crowdfunding service providers (as defined in and subject to the Crowdfunding Regulation (Regulation (EU) 2020/1503)) are exempt from its application.
ESMA updates its opinion on ancillary calculations
On 6 May 2021 ESMA published an updated opinion on ancillary activity calculations which outlined the estimation of the market size of commodity derivatives and emission allowances for 2020. ESMA's opinion considers that the guidance on market size will have a positive effect on supervisory practices and will ensure a consistent approach is taken throughout the Union. These estimations allow market participants to review whether they are over the ancillary activity thresholds in MiFID II, which would mean they would have to apply for authorisation as an investment firm.
EBA updates phase 1 of its 3.1 reporting framework
On 10 May 2021 the EBA published phase 1 of its reporting framework version 3.1 Standard specifications are provided to support the implementation of the reporting framework, which include the validation rules, the data point model and the XBRL taxonomies. The reporting requirements for investments firms are also provided for in this package.
ESMA consults on its MiFID II/MiFIR Annual Report
On 12 May 2021 ESMA launched a consultation in relation to its MIFIDII/MiFIR Annual Review Report under Commission Delegated Regulation (EU) 2017/583 (RTS 2). Specifically this consultation paper allows for the annual assessment of the operation of the thresholds for the liquidity determination of bonds as well as the trade percentiles determining the pre-trade SSTI threshold. The objective of these proposals is to increase the transparency available to market participants in the bond market. This consultation ends on 11 June 2021.
ESMA publishes guidelines on the calculation of positions under SFTR
On 25 May 2021 ESMA published its final report on guidelines on the calculation of positions in securities financing transactions (SFT) by Trade Repositories under the Securities Financing Transactions Regulation (SFTR). The objective of these guidelines is to ensure that a uniform methodology is used under EMIR and SFTR, while taking into account the specificities of SFT reporting. The guidelines will apply from 31 January 2022.
ESMA proposes lowering the reporting threshold for net short positions
After examining the evidence gathered after its successive emergency decisions, which started in March 2020, ESMA has recommended the European Commission to lower threshold to notify net short positions on shares to national competent authorities from 0.2% to 0.1% on a permanent basis.
ESMA launches a consultation paper on disclosure requirements for initial review and preliminary ratings
On 26 May 2021 ESMA launched a public consultation on disclosure requirements for initial review and preliminary ratings. The objective of this consultation paper is to propose guidance that will address the inconsistences in the interpretation of certain provisions from the Credit Rating Agencies (CRA) Regulation. ESMA seeks feedback on the following:
- how the term "initial review and preliminary rating" should be understood
- the content and timings of CRAs public disclosures in relation to interactions that are up to the standard of "initial review and preliminary rating"
- the steps to ensure these public exposures are accessed easier for the market and the investors
ESMA expects to review the responses in Q3 2021 and will publish a final report by the end of Q4 2021.
ESMA consults on synthetic securitisations RTS and amendments to STS templates
On 27 May 2021 ESMA published a consultation paper on draft regulatory technical standards (RTS) implementing the amended Securitisation Regulation (SECR). The consultation paper outlines ESMA's proposed draft RTS and implementing technical standards which specify the format and the content of the standardised templates for simple, transparent and standardised notification of on-balance sheet securitisations. The consultation is open until 20 August 2021.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 4 June 2021