Financial Services Regulation and Compliance - Investment Firms Nov 2020
Financial Services Regulation and Compliance - Investment Firms Nov 2020
CBI publishes latest Markets Update
The CBI has published issue 12 of its Markets Update for 2020. In domestic news, issue 12 focuses on the revised expectations of the CBI as regards regulatory flexibility for securities markets, investment management, investment firms and fund service providers. Internationally, issue 12 focuses on a range of ESMA updates.
CBI updates prudential regulatory flexibility measures for securities markets, investment management, investment firms and fund service providers
The CBI has updated its expectations as regards regulatory flexibility for securities markets, investment management, investment firms and fund services providers. The CBI has concluded that certain measures previously communicated and which have since expired, will not be extended.
regulatory remittance dates for investment firms and fund service providers
pillar 3 disclosures
the submission of assurance reports in respect of investment firms and fund service providers' arrangements for the safeguarding of client assets or investor money
The CBI has also revised its expectations in respect of risk mitigation programme implementation dates and clarified its expectations on the application of Pillar 2 Guidance by MiFID investment firms subject to CRR/CRD IV.
CBI publishes outcome of thematic review of compliance by MiFID-authorised investment firms with best execution requirements for consumers
The CBI has published the outcome of a thematic review of compliance by MiFID-authorised investment firms into best execution requirements for consumers.
The main findings of the thematic review are:
significant governance shortcomings, including a lack of evidence of board and/or committee oversight and challenge of the best execution process
a lack of evidence that best execution frameworks were reviewed by firms on a regular basis and in response to regulatory developments
a lack of evidence of independent reviews of the best execution process and limited evidence that firms were carrying out assurance testing
The review also found that the root cause of the shortcomings stemmed from a lack of investment by firms in their compliance functions, which led, in some cases, to compliance roles being vacant for prolonged periods.
CBI welcomes Commission announcement of temporary UK equivalence decision for Central Securities Depository Regulation
The CBI has welcomed the announcement by the European Commission of the temporary UK equivalence decision for the purposes of the Central Securities Depository Regulation (CSDR) until June 2021. Deputy Governor Sharon Donnery commented that the decision was an important step towards ensuring the Irish capital market avoids disruption between 1 January 2021 and allowing for the planned migration of Irish issuers in March 2021.
ESMA makes new bond liquidity data available
ESMA has made available new data for bonds subject to the pre- and post-trade requirements of MiFID II and MiFIR through its data register. There are currently 499 liquid bonds subject to MiFID II transparency requirements.
ESMA publishes data for the systemic internaliser calculations for equity, equity-like instruments, bonds and other non-equity instruments
ESMA has published data for the systemic internaliser calculations for equity, equity-like instruments, bonds and other non-equity like instruments under MiFID II and MiFIR. The data includes the total number of trades and total volume over the period from April to September 2020 for the purpose of systemic internaliser calculations under MiFID II for 22,022 equity and equity-like instruments, 120,876 bonds and 5,907 sub-classes of derivatives.
ESMA specifies obligations on environmentally sustainable activities
ESMA has published a consultation paper containing draft advice to the European Commission on the disclosure obligations of non-financial undertakings and asset managers under Article 8 of the Taxonomy Regulation.
ESMA has conducted a targeted outreach to various stakeholders to ensure the draft advice covers key considerations in the market. The consultation closes on 4 December 2020 and ESMA will deliver its final advice to the European Commission by 28 February 2021.
ESMA publishes first Q&As on SFTR Reporting
ESMA has published its first set of questions and answers on reporting obligations under the Securities Financing Transactions Regulation (SFTR). The purpose of the Q&A is to provide greater clarity to market participants on how to comply with the reporting requirements under SFTR. The Q&A complements ESMA's guidelines on SFTR reporting which were published in January 2020.
ESMA publishes its first reports on CSDR implementation
ESMA has published its first two reports on the implementation of the Central Securities Depositories Regulation (CSDR).
The reports cover:
cross-border services and application handling
ESMA expects the reports to contribute to the upcoming review of the CSDR by the European Commission.
ESMA updates questions and answers on the Benchmarks Regulation
ESMA has updated its questions and answers on the European Benchmarks Regulation (BMR). The Q&A provides clarification on transitional provisions of BMR regarding critical benchmarks.
ESMA publishes new Q&A on product governance - 6 November 2020
ESMA has updated its questions and answers on the implementation of investor protection topics under MiFID II/MiFIR. The updated Q&A contains three new questions and answers on 'product governance' which aim to give guidance to firms on ensuring that:
financial instruments’ costs and charges are compatible with the needs, objectives and characteristics of the target market
costs and charges do not undermine the financial instruments' return expectations
the charging structure of the financial instrument is appropriately transparent for the target market
ESMA launches consultation on MiFID II/MiFIR obligations on market data
ESMA has published a consultation paper on draft guidelines on the MiFID II/MiFIR obligations on market data. The proposed guidelines aim to ensure better and uniform application of these obligations.
The consultation period is open until 11 January 2021. ESMA will consider the feedback it receives to the consultation and expects to publish a final report and final guidelines by Q2 2021.
ESMA issues latest Double Volume Cap data
ESMA has updated its public register with the latest set of double volume cap (DVC) data under MiFID II. The updates include DVC data and calculations for the period 1 October 2019 to 30 September 2020. The number of new breaches is 31:15 equities for the 8% cap, applicable to all trading venues, and 16 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 12 November 2020 to 11 May 2021. As of 9 November 2020, there are a total of 246 instruments suspended.
ESMA releases report on post trade risk reduction services
ESMA has released a report on post trade risk reduction services (PTRR) under the European Market Infrastructure Regulation (EMIR). The report analyses whether any trades that directly result from PTTR services should be exempted from the clearing obligation.
ESMA updates Brexit statements for the end of UK transition period
ESMA has updated three statements which address the impact on reporting under EMIR, SFTR and on the operation of ESMA databases and IT systems after 31 December 2020. The following statements have been updated:
the statement on issues affecting EMIR and SFTR reporting
the statement on the use of UK data in ESMA databases and performance of MiFID II calculations
the statement on ESMA’s Data Operational Plan
ESMA updates Q&As for prospectus and transparency rules linked to Brexit
ESMA has updated its questions and answers on the Prospectus Regulation (PR) and the Transparency Directive in the context of the Brexit transition period. ESMA has also made further updates to the Q&A relating to the PR as part of an ongoing revision exercise.
ESMA publishes guidelines on securitisation repository data completeness and consistency thresholds
ESMA has published guidelines for securitisation repositories on securitisation repository data completeness and consistency thresholds. The guidelines apply from 1 January 2021.
ESMA publishes annual statistical report on derivatives markets
ESMA has published its third annual report analysing the EU's derivatives markets. The report provides a comprehensive overview of the EU's derivatives markets in 2019 and is based on data submitted under the EMIR.
ESMA identifies costs and performance and data quality as new Union Strategic Supervisory Priorities
ESMA has identified costs and performance for retail investment products and market data quality as Union Strategic Supervisory Priorities for national competent authorities (NCAs).
The specific topics on which NCAs will undertake supervisory action in 2021 are:
costs and fees charged by fund managers
improving the quality of transparency data reported under MiFIR
ESMA tells fund managers to improve readiness for future adverse shocks
ESMA has published a report on the preparedness of investment funds with significant exposures to corporate debt and real estate assets for potential future adverse liquidity and valuation shocks.
The report has identified several priority areas which would enhance the preparedness of funds, namely:
ongoing supervision of the alignment of the funds’ investment strategy, liquidity profile and redemption policy
ongoing supervision of liquidity risk assessment
fund liquidity profile reporting
increase of the availability and use of liquidity management tools
supervision of valuation processes in a context of valuation uncertainty
ESMA publishes overview of the size and structure of the EU securities markets
ESMA has published its first statistical report on the EU securities markets. The report uses new regulatory data sources to give a comprehensive overview of European equity and bond markets in 2019. The report includes details on the number, characteristics, volumes traded and transparency on equity and bond instruments subject to MiFID II.
ESMA consults on fees and derogation criteria for data reporting services providers
ESMA has launched two public consultations on the subject of data reporting service providers (DRSPs) to be supervised by ESMA in 2022. ESMA is seeking stakeholder views on the proposed fee framework for DRSPs which draws on the existing frameworks for trade repositories and securitisation repositories. ESMA is also seeking feedback on its draft technical advice to the European Commission on derogation criteria which permit DSRPs to be subject to authorisation and supervision by a competent authority of a Member State.
The closing date for responses to both consultations is 4 January 2021.
ESMA sets out its final view on the derivatives trading obligation
ESMA has released a public statement clarifying the application of the EU's trading obligation for derivatives (the DTO) following the end of the Brexit transition period on 31 December 2020. The statement confirms the approach outlined in ESMA's previous statement published in March 2019 that the DTO will continue to apply without changes after the end of the transition period.
ESAs propose to adapt the EMIR implementation timelines for intragroup transactions, equity options and novations to EU counterparties
The EBA, EIOPA and ESMA (the ESAs) have published a report with draft RTS proposing to amend the Commission Delegated Regulation on the risk migration techniques for over-the-counter derivatives not cleared by a central counterparty under EMIR. ESMA has also published a final report with new draft RTS which proposed to amend three Commission Delegated Regulations in the areas of intragroup transactions, equity options and novations from UK counterparties to EU counterparties.