Financial Services Regulation & Compliance - Investment Firms September 2018

DOMESTIC

CBI issues reporting requirements for MiFID Investment Firms

The CBI published updated reporting requirements for MiFID investments firms. The guidelines of scheduled returns included useful information on the return frequency and guidance notes in relation to the specified documentation listed.

Investment Undertaking Electronic Account Filing Requirements Regulations 2018 [S.I. No. 368 of 2018] published

The Investment Undertaking Electronic Account Filing Requirements Regulations 2018 have been published in the Irish Statute book and are now in force. These Regulations apply to specified persons for accounting periods to which section 739X of the Principal Act applies. The regulations provide for definitions, specified persons, obligations, format and the inspection of financial statements.

Markets in Financial Instruments Bill 2018 has reached final stages at Dáil Éireann

The Bill allows for an Act to be made, with respect to certain regulations that concern markets in financial instruments, it makes provision for indictable offences for contraventions under the MiFID II Regulations, that carry greater maximum penalties than those permitted by the European Communities Act 1972. The bill makes provision in relation to fees in respect of the performance by the CBI of certain functions, to amend Schedule 2 to the Central Bank Act 1942, to amend section 2 of the Credit Reporting Act 2013 and the definition of “long-term financial service” in the Financial Services and Pensions Ombudsman Act 2017, to repeal section 5 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007,and to provide for related matters. The bill has now reached the order for report and final stages at the Dáil.

EUROPEAN

European Banking Federation (EBF) issues proposal for amendments to the European Parliament's draft report on the proposal for a Regulation on disclosures relating to sustainable investments and sustainability risks

The proposal for a Regulation on disclosures relating to sustainable investments and sustainability risks aims to ensure that financial market participants, insurance intermediaries and investment firms taking investment decisions on behalf of clients or beneficiaries or providing investment advice, integrate environmental, social and governance (ESG) considerations into the investment and advisory process in a consistent manner and provide investors with related information. The EBF argues that the inclusion of credit institutions in the scope of the regulation should be limited to the provision of portfolio management or investment advice services by credit institutions under the Markets in Financial Instruments Directive (MiFID II). The EBF suggests that provision of credit should be left out from the scope of the regulation and covered in a separate proposal.

ESMA publishes press release on the high level of diversity in national markets for structured retail products

ESMA carried out a study of the EU market in structured retail products, from an investor protection perspective. The research broke down the EU market geographically into national retail markets and found a high degree of heterogeneity in the types of product sold. The report identified that although a wide array of different structured products are available to retail investors across the EU; each national market is concentrated around a small number of common types, namely capital protection products, yield enhancement products and participation products. The analysis was carried out both at an EU-wide level and also specifically in the French, German and Italian retail markets, and suggests that the search for yield has been a common driver of several changes in the distribution of product types. These products are a significant vehicle for household savings, however they remain complex and the net performance warrants a closer examination.

ESMA publishes note on what drives the use of Credit Default Swaps (CDS) by EU investment funds

ESMA published a note on what drives the use of CDS by EU investment funds. The ESMA, in a study carried out on data reported under European Market Infrastructure Regulation (EMIR), found that funds that are part of a large group are more likely to use CDS. A high reliance on CDS is seen among fixed income funds that invest in less liquid markets, and alternative funds that implement hedge-fund-like strategies. The main driver of net CDS exposures is fund size. The article also investigates the bond-level drivers of funds’ net single-name CDS positions and finds that CDS positions on investment-grade bonds issued by sovereign issuers – most of which are emerging markets – tend to be larger. The analysis also sheds light on tail-risk for funds from the use of CDS. Directional funds that belong to a large group are the most likely to have sold only CDS exposures, exposing them to significant contingent risk.

ESMA publishes opinion on Amendments to Commission Delegated Regulation EU 2017/587 (RTS1)

On 26 March 2018, the ESMA submitted a proposal for an amendment of Commission Delegated Regulation (EU) 2017/587 (RTS 1) to the European Commission (the Commission) pursuant to Article 10(1) of Regulation No (EU) 1095/2010 (the ESMA Regulation) and Article 14(7) of MiFIR. On 10 August 2018, the Commission informed ESMA of its intention to endorse the amendment to RTS 1 subject to changes in accordance with Article 10(1) of the ESMA Regulation. In its opinion ESMA agreed to limit the application of tick sizes to quotes of systematic internalisers to shares and depositary receipts. ESMA considers that the amendment of the Commission will ensure the application of tick sizes to quotes of systematic internalisers for most equity instruments in a timely fashion. ESMA has sent its opinion and revised draft RTS to the EC, for endorsement.

ESMA to publish new data completeness indicators for trading venues

ESMA has announced details of two new data completeness indicators for trading venues detailing the delivery of double volume cap (DVC) and bond liquidity data. The two indicators, the Completeness Ratio and the Completeness Shortfall, will assist trading venues in delivering complete and accurate data on a timely basis, by providing performance information on the timeliness and completeness of their data provision. The indicators will be published for the first time on 8 October for DVC data and by 1 November for bond liquidity.

ESMA publishes update to Q&A on MiFIR data reporting

ESMA has published an update on MiFIR data reporting Q&A. The question posed was that in the case of bonds or other forms of securitised debt, what should be reported in Commission Delegated Regulation (EU) 2017/585 Annex Table 3 Field 14 if the total nominal amount changes. Similarly, what should be reported in Commission Delegated Regulation (EU) 2017/585 Annex Table 3 Field 17 (Nominal value per unit/minimum traded value) if nominal value per unit/minimum traded value changes. The ESMA advised that in the case of bonds or other forms of securitised debt, a trading venue should update Field 14 if the total nominal amount increases or decreases. The same approach should be applied to Field 17 (Nominal value per unit/minimum traded value). Trading venues are not expected to report under Field 14 the total size of the issuance programme under which the specific instruments have been issued but only the nominal amount effectively issued for the specific ISIN being reported.

ESMA publishes update to Q&A on the Implementation of the Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR)

ESMA has published an update to the Q&A on the implementation of EMIR. The questions posed pertained to how an FX swap should be reported under Article 9 of EMIR and how should a lifecycle event affecting a single leg of a swap be reported under Article 9 of EMIR. The ESMA published useful tables setting out the answers to these queries.

EMIR publishes Final Report on the Clearing Obligation under EMIR (no. 6)

The final report presents a new set of draft regulatory technical standards (RTS) on the clearing obligation that ESMA has developed under Article 5(2) of EMIR. The draft RTS relate to the treatment of certain intragroup transactions concluded with a third country group entity. There are currently three Commission Delegated Regulations on the clearing obligation. These Commission Delegated Regulations contain a deferred date of application of the clearing obligation for intragroup transactions satisfying certain conditions and where one of the counterparties is in a third country, in the absence of the relevant equivalence decision. ESMA published a proposal to extend the deferred dates of application as there have not been any equivalence decisions to date with regards to the clearing obligation and conducted a public consultation on the amending draft RTS. The final report presents the finalised version of the draft RTS.

ESMA renews restriction on contracts for differences (CFDs) for a further three months

ESMA has agreed to renew the restriction on the marketing, distribution or sale of CFD's to retail clients, in effect since 1 August, from 1 November 2018 for a further three-month period. ESMA has considered the need to extend the intervention measure currently in effect and considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. It has therefore agreed to renew the restriction from 1 November.

ESMA publishes updated Q&A on the Implementation of the Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories

ESMA has published the updated Q&A on the Implementation of the Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories. The main updates pertain to the Book entry form, general organisational requirements and settlement discipline questions on matching settlement instructions, joint penalties mechanism and penalty calculation.

ESMA updates the Central Securities Depository Regulation (CSDR) Q&A's                 

ESMA has updated the CSDR Q&A's. In relation to book-entry form requirements, the Q&A specifies the scope and timing of application of the requirement in Article 3(2) of CSDR to dematerialise certain transferable securities when they are transferred as collateral. In relation to organisational requirements, the Q&A concerns the scope of the services and activities of a CSD covered by the requirements set out in Article 30 of CSDR on Outsourcing. In relation to settlement discipline the ESMA published the first set of Q&A's relating to settlement discipline issues following the publication of Commission Delegated Regulation (EU) 2018/1229 on settlement discipline.

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

Date published: 10 October 2018