Tracker, Financial Services Regulation & Compliance - Investment Firms


Central Bank publishes programme of themed inspections in Markets Supervision            

The Markets Supervision Directorate of the Central Bank has published its programme of themed-inspections for 2016. These inspections reflect a number of supervisory priorities for 2016. The planned themed-inspections for 2016 are:

  • Outsourcing Arrangements.
  • Review of AIFMs adherence to their programme of activity.
  • Focus on the risk culture within firms.
  • Analysis of the production costs of investment funds.
  • Review of the use of financial indices as eligible investments for UCITS investment funds.
  • Continued focus on various issues with director time commitments.
  • Focused review of Client Asset Management Plans for Investment Firms.
  • Focus on resilience of firms’ IT systems.
  • Review of the suitability assessment of clients.
  • Examination of the information provided to clients on an on-going basis.
  • Review of hedging arrangements at share class level for investment funds.
  • Review of the practices of firms regarding market abuse and when dealing with insider information.


ESMA publishes final report on draft ITS under MiFID II

MiFID II and MiFIR require ESMA to develop a number of Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS). ESMA published a report of its final proposals for a total of 8 draft technical standards together with the draft technical standards in the annexes. The report describes the rationale behind ESMA’s final proposals.

The final report has been submitted to the European Commission which has three months from 11 December 2015 (this period can be extended by one additional month) to decide whether to endorse the technical standards.

EBA issues recommendations for sound prudential regime for investment firms

The EBA has published presenting its findings and listing a series of recommendations aiming to provide a more proportionate and less complex prudential regime for investment firms.

The report identifies the lack of risk sensitivity in the CRD and CRR regime for investment firms and proposes recommendations to target specific risks posed by investment firms. The report proposes a new category of investment firms, which will distinguish between systemic and "bank-like" investment firms to which full CRD/CRR requirements should apply, and other non-systemic investment firms for which specific requirements should be defined.

The EBA also recommends extending the waiver from the large exposures and capital adequacy provisions for commodity trading firms until 31 December 2020 in order to assess whether a more proportionated framework is suitable for these firms.

ESMA will not exempt the collateralisation of bank guarantees for energy derivatives under EMIR

In a statement published recently, ESMA announced its decision not to extend the existing grace period of 3 years for the non-financial firms’ use of non-collateralised bank guarantees to cover transactions in energy derivatives cleared by European CCPs. Therefore, from 15 March 2016 CCPs authorised under EMIR will need to fully collateralise commercial bank guarantees used to cover transactions in derivatives relating to electricity or natural gas. Concerned stakeholders ought to be ready to implement the collateral obligation regarding commercial bank guarantees by March 2016.

European Commission proposes to overhaul prospectus rules

The European Commission (the Commission) has proposed an overhaul of the rules that allow companies to raise money on public markets as part of the Capital Markets Union (CMU) action plan. The CMU action plan is designed to unlock funding for businesses and provide more investment opportunities in the EU. Under the Commission's proposal SMEs, in particular, will find it easier to raise funding when issuing shares or debt.

As currently arranged, disclosure requirements impose a significant burden on companies (particularly small companies) and often generate unwieldy amounts of information for investors. The proposed rules are intended to enable investors to make informed decisions, simplify the compliance burden for issuing companies and encourage cross-border investments.

The proposal would:

  • raise the exemption for small capital raisings from €100K to €500K. Member States will also be able to exempt all offers of securities up to €10m (previously €5m) in respect of domestic offers for which no passport notification to host Member States is sought;
  • introduce a lighter prospectus regume for smaller issuers and increase the market capitalisation threshold for SMEs who can use the simplified regime from €100m to €200m;
  • support shorter and clearer prospectus summaries;
  • simplify prospectus requirements for secondary issuances. Companies that frequently raise funds on capital markets will also be able to use an annual "Universal Registration Document" (URD) containing all the necessary information which would allow issuers to benefit from a 5 day fast-track approval when they actually want to raise funds.
  • enable ESMA to provide free and searchable online access to all prospectuses approved in the EEA.

The proposal will go to the European Parliament and the Council of the EU (Member States) for discussion and adoption.

ESMA publishes guidelines on complex debt instruments and structured deposits

Article 25(4) of MiFID II provides for an "execution only" exemption from the requirement on investment firms to obtain the client information necessary to assess the appropriateness of the service or product for the client.  One of the conditions for the application of the exemption is that the services relate to products which are “non-complex” for the purpose of the same paragraph.

Article 25(10) requires ESMA to develop guidelines for assessing the complexity of:

• bonds, other forms of securitised debt and money market instruments incorporating a structure which makes it difficult for the client to understand the risk involved, and

• structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term.

Section II of the report briefly illustrates the guidelines following the responses to the consultation. Section III contains the Annexes: Annex I provides the Summary of questions raised in the consultation paper, Annex II describes the legislative mandate, Annex III reports the cost-benefit analysis, Annex IV explains the detailed feedback on the responses received to the consultation paper, Annex V contains the final text of the guidelines and includes a summary of a non-exhaustive list of examples of complex products for the purpose of the guidelines.

ESMA announces European swap clearing to start in June 2016

From 21 June 2016, firms will have to centrally clear certain classes of interest rate swaps. This marks an important milestone in implementing EMIR – and follows the G20 commitment to clear all standardised OTC derivative contracts, where appropriate, through central counterparties (CCPs). The clearing obligation will cover the following classes of OTC interest rate derivatives denominated in the G4 currencies (EUR, GBP, JPY and USD):

  • fixed-to-float interest rate swaps;
  • float-to-float swaps
  • forward rate agreements; and
  • overnight index swaps.

The next clearing obligations will cover index credit default swaps as well as interest rate swaps denominated in NOK, PLN and SEK.

ESMA registers Rating-Agentur Expert RA GmbH as a credit rating agency

ESMA has registered Rating-Agentur Expert RA GmbH as a credit rating agency (CRA) under Regulation (EC) No 1060/2009 (the CRA Regulation). Rating-Agentur Expert RA GmbH is based in Germany, issuing solicited credit ratings on financial institutions, insurance undertakings and non-financial corporates as well as public finance. In addition, the CRA also issues unsolicited sovereign ratings. This brings the total number of CRAs registered in the EU to 26.

Hong Kong regulator and ESMA agree memorandum of understanding

The Securities and Futures Commission (SFC) of Hong Kong and ESMA have agreed a Memorandum of Understanding regarding arrangements for the exchange of information related to the information on derivatives contracts held in trade repositories. The arrangement is not legally binding and does not affect any other arrangements between the SFC and any Member States of the EU.

Council of the EU agrees on Commission proposal for simple and transparent securitisation

The Commission put forward its proposal to re-launch EU securitisation markets on 30 September as part of its Action Plan for the Capital Markets Union (CMU). The proposal introduces criteria for determining if securitisation instruments qualify as "simple, transparent and standardised", and therefore whether they are eligible for more appropriate prudential treatment. Similarly to the Council, the European Parliament needs to agree its position to allow for a final agreement on the text between the two co-legislators.

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

Date published: 04 Janaury 2016