Financial Services Regulation and Compliance - Investment Firms Sept 2020

DOMESTIC

Markets Update, Issue 9 2020

The CBI has published issue 9 of its Markets Update for 2020. In domestic news, this issue focuses on guidance published by the CBI on Money Market Fund Regulation (MMFR) reporting for Authorised Money Market Investment Funds. Internationally, the issue focused on a multitude of ESMA updates.

EUROPEAN

ESMA publishes call for evidence in the context of the review of transparency requirements for equity and non-equity instruments

The European Securities and Markets Authority (ESMA) has published a call for evidence in the context of its intention to review Commission Delegated Regulation (EU) no 2017/587 (RTS 1) and Commission Delegated Regulation (EU) No 2017/583 (RTS 2). RTS 1 and RTS 2 contain the main implementing measures in respect of the MiFID II/MiFIR transparency regime for equity and non-equity instruments. 

ESMA is seeking views on practical issues relating to the application of RTS 1 and RTS 2 that market participants have identified since the application of MiFID II/MiFIR. The deadline for responses is 31 October 2020. ESMA will consider the feedback while preparing a consultation paper for the review of RTS 1 and RTS 2, which will be published in 2021. 

ESMA publishes its second trends, risks and vulnerabilities (TRV) report of 2020

ESMA has published its second trends, risks and vulnerabilities (TRV) report of 2020. The report analyses the impact of COVID-19 on financial markets during the year and highlights the risk of a potential decoupling of financial market performance and underlying economic activity. The report also highlights specific risks for financial stability and investors in relation to collateralised loan obligations, model risk, EU fund industry interconnectedness and spillovers, research unbundling and closet index funds costs. 

ESMA confirms Securitisation Regulation requirements' entry into force on 23 September 2020

ESMA has confirmed that certain elements of the new regime under the Securitisation Regulation will come into force on 23 September 2020. The announcement follows the publication of seven technical standards implementing the Securitisation Regulation in the Official Journal of the European Union. 

The publication of technical standards triggers:

  • the opening of applications for entities to register as Securitisation Repository
  • the entry into force of new disclosure templates

ESMA issues latest Double Volume Cap data

On 7 September, ESMA updated its public register with the latest set of double volume cap data (DVC) under MiFID II. The updates include DVC data and calculations for the period 1 August 2019 to 31 July 2020 as well as updates to already published DVC periods. 

There were 37 new breaches in total, of which 26 were equities for the 8% cap, applicable to all trading venues, and 11 were equities for the 4% cap, which applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 11 September 2020 to 10 March 2021. The instruments for which caps already existed from previous periods will continue to be suspended. As of 7 September 2020, there is a total of 288 instruments suspended.

ESMA provides for the option to apply the annual transparency calculations for non-equity instruments from 21 September

ESMA has decided that trading venues and investment firms may postpone, for operational reasons, the application of the annual transparency calculations for non-equity instruments other than bonds to 21 September 2020. The decision also applies to quarterly calculations for the purposes of the systematic internaliser regime for non-equity instruments other than bonds. 

The transparency requirements will apply from 15 September 2020 (with firms having the option to delay application until 21 September 2020) until 31 May 2021. From 1 June 2021, the results of the next annual transparency calculations for non-equity instruments, to be published by 30 April 2021, will become applicable.

ESMA renews its decision requiring net short position holders to report positions of 0.1% and above

ESMA has renewed its decision to temporarily require the holders of net short positions in shares traded in an EU regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of issued share capital.  The measure will apply for a period of three months from 18 September 2020. The rationale for the decision is to maintain the ability of national competent authorities to deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage, in light of the ongoing economic uncertainty created by the COVID-19 pandemic. 

ESMA agrees position limits under MiFID II

On 23 September, ESMA published three opinions on position limits regarding commodity derivatives under the MiFID Regulation.  The opinions agree with proposed position limits regarding:

  • the EEX TTF Gas Contract
  • the Nasdaq Oslo Noric Power contract
  • the Fits Pool Farmed Salmon contract

ESMA found that the proposed position limits are consistent with the objectives established in MiFID II and with the methodology developed for setting those limits. 

ESMA makes proposals to help prevent and detect the WHT reclaim schemes

ESMA has published the final report on its inquiry into Cum/Ex, Cum/Cum and withholding tax (WHT) reclaim schemes. ESMA has identified a number of measures adopted by various Member States to limit the risk of WHT reclaims schemes being pursued. ESMA's key proposal is that national competent authorities (NCAs) for securities markets should be empowered to share information with tax authorities, to assist in detecting WHT reclaim schemes. 

ESMA also recommends legislative change to remove legal limitations on NCAs exchanging information acquired from other NCAs with tax authorities. ESMA has also identified certain best practices among NCAs that are permitted under national legislation to supervise WHT schemes. 

ESMA publishes draft rules for third-country firms under new MiFIR and MiFID II regimes

ESMA has published its final report on draft regulatory and implementing technical standards (RTS and ITS) on the provision of investment services and activities in the EU by third country firms under MiFIR and MiFID II. The technical standards are published as a result of changes to the MiFIR and MiFID II regimes introduced by the Investment Firms Regulation and Investment Firms Directive. 

ESMA updates Q&As on data reporting under MiFIR and EMIR

ESMA has updated its questions and answers documents on data reporting under the Market in Financial Instruments Regulation (MiFIR) and the European Markets Infrastructure Regulation (EMIR). The updated document for MiFIR contains a new Q&A and two amendments to existing Q&As. The updated document for EMIR clarifies certain issues relevant to trade repositories. 

ESMA publishes outcomes of MAR Review

ESMA has published a report on the Market Abuse Regulation (MAR), the first in-depth review of MAR since its implementation in 2016. The report, which follows a 2019 consultation, concludes that, overall, MAR has worked well in practice and is fit for purpose.  The report has also made a number of recommendations for targeted amendments to MAR. The report will be submitted to the European Commission and is expected to feed into its review of MAR. 

ESMA consults on OTF Regime

ESMA has issued a consultation paper seeking input on the functioning of the organised trading facility (OTF) regime in the EU. The paper provides an overview of the functioning of the OTF regime and discusses the definition of OTFs, the use of discretion in the execution of orders and the practice concerning the use of matched principal trading. Respondents to the paper are encouraged to provide relevant information, including quantitative data, to support their views or proposals. Responses should be submitted by 25 November 2020. 

ESMA updates regulatory technical standards under the Benchmarks Regulation

ESMA has published its final report containing new sets of draft regulatory technical standards (RTS) under the Benchmarks Regulation (BMR). The RTS aim to ensure the accuracy and integrity of benchmarks across the EU and include provisions requiring that: 

  • governance arrangements of administrators are sufficiently robust
  • the potential manipulation of benchmarks is minimised through additional rules regarding the methodology of calculation and controls to ensure the integrity of the data
  • common criteria are used across Member States for the assessment of mandatory administration of critical benchmarks and the compliance statement for non-significant benchmarks

ESMA proposes amendments to MiFIR transparency regime for non-equity financial instruments

ESMA has published its final report on the MiFID II/MiFIR transparency regime applicable to non-equity financial instruments. The proposals in the report aim to simplify the regime and foster harmonised application across the EU. 

ESMA's main proposals are:

  • deleting the specific waiver and deferral for respectively orders and transactions above the “size-specific to the instrument” threshold
  • streamlining the deferral regime with both a simplified system based on volume masking and full publication after two weeks as well as removing the supplementary deferral options left to national competent authorities (NCAs) under the current MiFIR text
  • transforming the possibility granted to NCAs to temporarily suspend MiFIR transparency provisions into a mechanism coordinated at EU-level
  • including the possibility to suspend on short notice the application of the derivative trading obligation similarly to the mechanism available in EMIR
  • complementing the criteria used to grant equivalence to third-country trading venues for the purpose of the derivative trading obligation with conditions relating to transparency and non-discriminatory access

ESMA launches consultation on fees for benchmarks administrators under BMR

ESMA has launched a consultation paper on fees for benchmarks administrators under the Benchmark Regulation (BMR). The closing date for responses to the papers is 6 November 2020.  ESMA will consider responses to the consultation with a view to providing technical advice to the European Commission in January 2021.  

ESMA releases statement concerning the applicability of Level 3 guidance under the Prospectus Directive

ESMA has released a public statement concerning the applicability of level 3 guidance under the Prospectus Directive. The statement explains that ESMA's work on revising Q&As published under the Prospectus Directive has now resumed. The statement also notes that the CESR recommendations on specialist issuers have not been rescinded and recommends that issuers apply them. 

For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 7 October 2020