Financial Services Regulation & Compliance - Investment Firms June 2018


CBI head of Securities and Markets Supervision puts conduct and culture on the agenda

In a speech this month, CBI Director of Securities and Markets Supervision Colm Kincaid said that conduct and culture remain key focuses of the CBI's regulatory oversight. He stressed that firms must understand the day-to-day behaviours across the organisation. The CBI's conduct-focused approach is illustrated by the Consumer Protection Risk Assessment model; it may go further by taking influence from the FCA's Senior Managers and Certification Regime.

Director Kincaid added that 80% of banks' conduct costs relate to misconduct in wholesale markets. The CBI is therefore developing more systematic approached to supervise wholesale markets and building on existing frameworks such as PRISM.


ESMA updates Q&As on Implementation of Regulations 909/2014 (CSDR) and 648/2012 (EMIR)

ESMA updated is Questions and Answers on regulation 909/ 2014 on improving securities settlement in the EU and on central securities depositories . These deal with the Central Securities Depository's investment policy and clarify the obligation to have 'access to assets' on the same business day as making a decision to liquidate those assets.

Meanwhile, the ESMA published responses to questions concerning Regulation 648/2012 on OTC derivatives, central counterparties and trade repositories. The Q&As provide clarity on obligations of reporting to trade repositories.

ESMA formally adopts temporary product intervention measures on binary option and CFDs and publishes Q&A

The ESMA's temporary restriction on marketing, distributing or selling binary options to retail investors and contracts for differences (CFDs) was published in the Official Journal of the European Union. They will come into force on 2 July 2018 (for Binary options) and 1 August 2018 (for CFDS) and both measures will last three months. CFDs will undergo restrictions such as leverage limits while selling or marketing binary options to retail investors will be prohibited outright.

The ESMA has also published a Q&A in order to clarify how the measures apply in relation to specific areas, such as:

  • existing contracts;
  • payments;
  • margin close-out protection;
  • CFDs referencing futures; and
  • guaranteed stop loss orders.

Commission proposes Regulation on sovereign bond-backed securities

The European Commission has proposed a Regulation for a novel financial instrument: sovereign bond-backed securities (SBBs). SBB would be a portfolio of sovereign bonds assembled by a private sector entity and subsequently transferred into a legally separate entity created specifically for the purpose of issuing these securities to investors. Unlike Eurobonds, another financial instrument proposed by the Commission, SBBs would not rely on any risk sharing or fiscal mutualisation between Member States.

ESMA publishes report on supervisory measures and penalties under Regulation 648/2012 (EMIR)

The ESMA has published a report on the use of penalties and supervisory measures by member states' national competent authorities under Articles 4, 9, 10 and 11 of EMIR. The report finds that national authorities are very consistent in in the sources of information they use for assessing compliance of supervised entities with EMIR. The competency of national authorities to seek documentation from counterparties, conduct on-site investigations, summon and interview people, and ask information from third parties is also highly harmonised.

On the other hand, member states vary in the criteria and systems they use to quantify administrative fines.

Commission enacts Delegated Regulation on regulatory technical standards for settlement discipline

The Commission passed a Delegated Regulation concerning regulatory technical standards on settlement discipline. The Delegated Regulation supplements Regulation 909/ 2014. The Delegated Regulation seeks to harmonise the obligations placed upon investment firms and central securities depositories in order to prevent settlement fails from occurring.

EMSA opens consultation on amendments to EMIR clearing obligation under Regulation 2017/2402 (the Securitisation Regulation)

The ESMA opened a consultation on the amendments to the clearing obligation under Article 4 of EMIR that have been enacted as part of the Securitisation Regulation. Article 4 requires that all OTC derivative contracts must be cleared in an EU-authorised or non-EU recognised Central Clearing Counterparty.

MiFID II temporary period for LEIs to end in July 2018

The ESMA confirmed that the temporary period allowing for a smooth introduction of the use of Legal Identity Identifiers (LEIs), originally introduced in December 2017, will not be further extended and will cease in July 2018.

ESMA provides response to the consultation document 'Fitness check on supervisory reporting'

The ESMA has provided a response to the Consultation Document on Fitness Check on Supervisory Reporting. The Consultation mainly focused on the cost of compliance with existing supervisory reporting requirements in EU. The goal of the Consultation was to streamline and simplify existing supervisory reporting.

For further information please contact a member of the Financial Regulation team.

Date Published: 10 July 2018