Financial Services Regulation and Compliance - Investment Firms May 2022
Financial Services Regulation and Compliance - Investment Firms May 2022
CBI reminds MiFID firms with branches outside the EU/ EEA of relevant requirements
On 16 May 2022, the Central Bank of Ireland (CBI) updated its website on the requirements and guidance for MiFID investment firms (the firms). The CBI reminds firms with branches outside the EU/ EEA the need to consider the following in relation to their operations:
ESMA's MiFID II supervisory briefing on the supervision of non-EU branches of EU firms providing investment services and activities (the supervisory briefing)
ESMA's opinion to support supervisory convergence in the area of investment firms in the context of the United Kingdom withdrawing from the EU
CBI PCF requirements
On the supervisory briefing, the CBI expects firms to:
demonstrate, on an ongoing basis, that any such branch structure is consistent with the principles set out in the supervisory briefing
provide the information set out in paragraph 18 of the supervisory briefing when initiating any consultation on this topic with the CBI
have assessed whether any additional risks arise from the use of a third country branch structure. In particular, the CBI will consider whether the firm proposes to put any mitigants in place to address these
Delegated regulation on procedural rules for the imposition of penalties on data reporting service providers
On 24 May 2022, Commission Delegated Regulation 2022/803 supplementing the Markets in Financial Instruments Regulation (MiFIR) was published in the Official Journal of the European Union (OJEU). The delegated regulation specifies the rules of procedure for the exercise of the power to impose fines or periodic penalty payments by ESMA, regarding data reporting service providers. The delegated regulation enters into force and applies on the third day following its publication in the OJEU.
ESMA launches four consultations on CCP resolution regime
On 19 May 2022, ESMA published four consultation papers on its proposed guidelines for the EU central counterparty (CCP) resolution regime. The consultation papers cover two mandated proposals for guidelines on the assessment of resolvability by resolution authorities and on the type and content of the provisions included in the cooperation arrangements between Member States and third-country authorities. The consultation papers also include two non-mandated proposals for guidelines on the summary of the resolution plan to be shared with CCPs, and on a template for the standard written arrangement referred to in the RTS for resolution colleges. The consultation is open until 1 August 2022. ESMA will consider the feedback received from stakeholders with a view to publishing the final reports by Q4 2022.
ESMA publishes final report on the MiFID II framework on best execution reports by investment firms
On 16 May 2022, ESMA published a final report on the review of the MiFID II framework on best execution reports by investment firms. The final report proposes the following:
Enhancing the MiFID II RTS 28 reports' quality of information (inter alia, by proposing to delete a specific reporting obligation for firms on the features of executed orders which has not proven effective under the current reporting framework.
Facilitating the use of MiFID II RTS 28 reports, e.g. via the suggestion that firms are required to publish the reports' quantitative information in the simple CSV format to facilitate end-users' access and comparison of this data.
The final report also contain proposals which concern potential changes to Article 27(6) of MiFID II Directive. The final report will be shared with the European Commission to contribute to the Commission's analysis on the adequacy of the MiFID II best execution reporting obligations and to any subsequent determinations on the retention of the regime and how it could possibly change.
ESMA publishes final reports on CCP resolution regime
On 12 May 2022, ESMA published six final reports on the CCP resolution regime under the CCP Recovery and Resolution Regulation. The final reports set out proposals for regulatory technical standards (RTSs) on:
the content of CCP resolution plans
valuation of CCPs' assets and liabilities in resolution
safeguards for clients and indirect clients
The final reports also cover guidelines on:
the circumstances under which a CCP is deemed to be failing or likely to fail
the methodology to value each contract prior to termination
The final reports on RTSs are submitted to the European Commission which has three months to decide if the proposed RTSs will be endorsed under a Delegated Regulation. The final reports on guidelines will be translated into all official languages of the EU.
ESMA publishes report on highly liquid instruments
On 12 May 2022, ESMA published its final report on highly liquid financial instruments for central counterparty (CCP) investment policies under European Market Infrastructures Regulation (EMIR). The report concludes that further work is to be done regarding the extension of the list of eligible financial instruments to certain public entities and potentially covered bonds pending further research. The report also concludes it would be premature to allow CCP investments in money market funds (MMF) as no category of MMFs currently meets all the conditions that define highly liquid financial instruments. The forthcoming review of the MMF Regulation is expected to assess possible changes to the regulatory framework that might make EU MMF adequate for CCP investments.
ESMA makes recommendations to improve investor protection
On 29 April 2022, ESMA published its final report on the European Commission mandate on certain aspects relating to retail investor protection. The report puts forward proposals which aim at maintaining a high level of investor protection, while ensuring that retail investors can benefit from digitalisation opportunities. The recommendations include the following:
requiring machine readability of disclosure documents to facilitate the development of searchable databases available to the public
addressing information overload by proposing to define what is vital information and by using digital techniques such as layering of information
development of a standard EU format of information on costs and charges and aligning the disclosures under MiFID and the PRIIPs KID
possibility for NCAs and ESMA to impose on firms the use of risk warnings for specific financial instruments
addressing aggressive marketing communications
addressing issues related to misleading marketing campaigns on social media and the use of online engagement practices, such as the use of gamification techniques by firms or third parties
ESMA objects to EC's proposed amendments on its draft ITS on insider lists
On 2 May 2022, ESMA published two Opinions regarding the amendments proposed by the European Commission (EC) to the regulatory technical standards (RTS) on liquidity contracts for SME Growth Market (SME GM) issuers and the implementing technical standards (ITS) on insider lists initially adopted by ESMA in October 2020. On the ITS on insider lists, ESMA disagrees with EC's proposal to exempt SME GM issuers from the obligation to create different sections of insider list for each piece of inside information and with the deletion of personal phone numbers from the insider lists. On the RTS on liquidity contracts for SME GM issuers, ESMA agrees with EC's proposals, whereby liquidity providers would have to post orders at prices that follow the independent trading interest and would not be obliged to post buy/sell orders in exceptional circumstances.
Sanctions imposed in response to the crisis in the Ukraine
Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.