Tracker, Financial Services Regulation & Compliance - Investment Firms

Central Bank consults on Investment Firm Regulations 2015

The Central Bank has published a consultation paper on the Investment Firm Regulations 2015.  The Central Bank proposes publishing an Investment Firms rulebook which will consolidate into one document all of the conditions and requirements which the Central Bank imposes on investment firms (including both MiFID investment firms and Investment Intermediaries Act (IIA) investment firms). The Central Bank proposes to issue the rulebook in the form of Central Bank regulations under the Central Bank (Supervision and Enforcement) Act 2013 (the 2013 Act).

The proposed rules generally reflect existing requirements. However, views are sought on two issues, where changes to the existing rules are proposed.

It is proposed that the requirements in Chapter 5 of the AIF Rulebook including those relating to capital will form part of the proposed Investment Firm Regulations. The requirements will remain similar to the existing requirements but there are some changes designed to broadly align with the CRR/CRD IV regime.

Chapter 5 of the AIF Rulebook also contains certain requirements applicable when Fund Administrators outsource activities. Some changes to these requirements are proposed, with the primary aim of setting out clearly the limited circumstances in which a Fund Administrator may outsource the checking and release of Final NAV calculations, and to specify the conditions to be complied with by Fund Administrators in such circumstances.

The consultation closes on 27 January 2016.

Central Bank publishes findings of thematic review of CFDs

The Central Bank has recently completed a thematic inspection in relation to Contracts for Difference (CFDs). The themed inspection assessed firms’ product oversight and governance processes in relation to CFDs and specifically sought to assess how firms are delivering fair outcomes for consumers. The Central Bank has concluded that CFDs are not suitable for investors who have a low risk appetite. The inspection revealed that of the 39,000 retail investors who invested in CFDs, 75% made a loss; with the average loss being €6,900.

As a result of the thematic review, the Central Bank as identified the following issues:

Assessment of Appropriateness - Firms are required to review their current appropriateness assessment to ensure that the information / assessment conducted in relation to a client’s suitability / appropriateness is reflective of the client’s prior knowledge and experience. In the event that the client’s prior knowledge and experience is not considered to be sufficient, firms must ensure that appropriate risk warnings are in place. Educational or training material offered by a firm cannot be the only barometer for assessing a client’s knowledge and experience.

Complaints Process - Firms are reminded of the requirements of the MiFID Regulations, and expects firms to meet the requirements of the Consumer Protection Code in relation to the complaints handling process, and should review current process and procedures to ensure they are in compliance.

Marketing Material – The Central Bank requires that firms review the requirements in relation to marketing material following its finding that marketing material was not always presented in a sufficiently balanced way to outline both the risks and benefits associated with CFDs. Furthermore, risk warnings were not always sufficiently prominent as required under the MiFID Regulations.


EU Commission adopts equivalence decisions for CCPs

The European Commission has decided that five countries (Canada, Switzerland, South Africa, Mexico and the Republic of Korea) have the equivalent regulatory regimes for central counterparties as the European Union and has, accordingly, adopted equivalence decisions for CCPs respect of those countries.

ECB publishes decision increasing PSPP issue share limit

Following the ECB decision establishing a secondary markets public sector asset purchase programme (PSPP) which provided for that the purchase of eligible marketable debt securities under the PSPP are subject to an initial issue share limit of 25% per international securities identification number (ISIN).

On 3 September 2015, the ECB decided in principle to increase the PSPP issue share limit from 25% to 33% per ISIN, subject to verification on a case-by-case basis that a holding of 33 % per ISIN would not lead the Eurosystem central banks to reach blocking minority holdings in orderly debt restructurings, and has therefore decided to amend Decision (EU) 2015/774 (ECB/2015/10) to reflect this.

ESMA publishes a consultation paper on indirect clearing arrangements under EMIR and MiFIR

ESMA is seeking stakeholders’ views on the draft requirements on indirect clearing arrangements for OTC derivatives and exchange-traded derivatives (ETD). The consultation paper covers draft regulatory technical standards (RTS) on indirect clearing arrangements for ETD and OTC derivatives under MiFIR and EMIR. Section 3 presents the proposed amendments and raises questions seeking all relevant stakeholders’ views.

The consultation closes on 17 December 2015.

ESMA publishes Q&A on the common operation of the Market Abuse Directive

ESMA has published a Q&A on the common operation of the Market Abuse Directive with the intention of building a common supervisory culture by promoting common supervisory approaches and practices. The document is aimed at competent authorities to ensure that their supervisory activities are converging along the lines of the responses adopted by ESMA and providing clarity on existing market abuse requirements, rather than creating an extra layer of requirements.

ESMA publishes final report on the draft technical standards on the clearing obligation

The first RTS on the clearing obligation for certain classes of OTC interest rate derivatives denominated in the G4 currencies were adopted by the European Commission on 6 August 2015.

This final report on the clearing obligation is covering certain classes of OTC interest rate derivatives denominated in the EEA currencies. It includes the final version of the draft RTS that are submitted to the European Commission for endorsement and proposes a clearing obligation for fixed-to-float interest rate swaps denominated in Norwegian Krone (NOK), Polish Zloty (PLN) and Swedish Krone (SEK) and forward rate agreements denominated in NOK, PLN and SEK.

ESMA consults on the validation and review of credit ratings agencies methodologies

ESMA is seeking stakeholders’ views on the validation and review of Credit Rating Agencies’ (CRAs) methodologies. The discussion paper will help ESMA to develop its views on the quantitative and qualitative techniques used as part of the validation of methodologies required under the CRA Regulation. The CRA Regulation states that ‘a credit rating agency shall use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back testing’. The discussion paper also asks for views on the quantitative and qualitative techniques required for a CRA to ‘review its credit ratings and methodologies on an ongoing basis and at least annually’.

The consultation closes on 19 February 2016.

ESMA publish protocol on operation of the ESMA MiFID database

ESMA has published a protocol describing the tasks and responsibilities of the national competent authorities and ESMA staff in the context of the MiFID market transparency regime which requires the national competent authorities for market transparency calculations to make certain calculations regarding shares admitted to trading on a regulated market (and to some extent "liquid shares"). The results of the calculations will be published by ESMA. In order to fulfil the requirements, a specific MiFID database has been set up as a part of the ESMA website. The Protocol also contains practical guidance on how to conduct the calculations as well as the necessary technical instructions.

ESMA publishes note on delays to MiFID/MiFIR implementation

Many of the changes that MiFID II / MIFIR are going to induce in financial markets require the design, construction, testing and operation of IT systems, that will be based on the requirements contained in the Regulations. Some provisions could operate in the absence of all the market players and all authorities being ready. However, some others require a high degree of synchronicity.

The following four areas are where the need for a harmonised start date is especially acute. These four areas are the main concerns in terms of possible delays.

  • Reference data
  • Transaction reporting
  • Transparency parameters and publication
  • Position reporting

There is a very high probability of a delay in all of the above 4 systems. At this stage, precisely determining what will be the feasible date for each of the systems is not possible without having the full specifications (RTS/ITS) published and subsequently analysed by IT experts and stakeholders. A first estimate will not be available probably until October/November at the earliest and a final estimate will not be available before March 2016, but very early estimates point out that it could easily amount to one year on average.

The options available to the NCAs, ESMA, the European Commission and the co-legislators are:

  • A Level 1 fix, postponing for a few months the application date of some articles.
  • A Level 2 fix, by fixing the applicability date, due to duly justified technical reasons, at a later moment than the applicability date of Level 1, with either one of two variants:
    • Establish a fixed date (e.g. 3 January 2018).
    • Establish a relative date with respect to another public and recognisable event.
  • A Level 3 fix, which would consist of agreeing between all NCAs, and publishing at ESMA level, an implementation date that would be later than the one contained on the RTS/ITS.

The relevant ESMA Committees and the ESMA Board have discussed this note and have a strong preference for a Level 1 solution.

Basel Committee publishes consultation on Capital treatment for “simple, transparent and comparable” securitisations

The Basel Committee on Banking Supervision published a consultation document on Capital treatment for "simple, transparent and comparable" (STC) securitisations. The proposal builds on the revised capital standards issued in December 2014.

The Committee seeks to gather views on:

  • the rationale for introducing criteria for identifying STC securitisations into the capital framework and whether there are any other aspects that the Basel Committee should consider before introducing STC criteria into the capital framework;
  • whether, for the purpose of alternative capital treatment, additional criteria are required; and
  • the compliance mechanism and the supervision of compliance presented in the consultative document.

The consultation closes on 5 February 2016.

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

Date published: 03 December 2015