Tracker, Financial Services Regulation & Compliance - Investment Firms
Central Bank of Ireland releases statement on Contracts for Difference, binary options and other speculative products
The CBI has released a statement to draw attention to a warning issued by ESMA on 25 July in relation to Contracts for Difference, binary options and other speculative products. The warning informed retail investors on the risks associated with these products and the related investor protection concerns. The CBI has released this statement to reiterate ESMA's concerns and to highlight the very high levels of risk associated with these products.
Central Bank of Ireland releases Industry Letter in relation to themed inspection of the Structured Retail Products market
Following the publication of its Consumer Protection Outlook Report in February 2016, in which potential consumer risks were identified in relation to the sale of SRPs to consumers, the CBI has released an Industry Letter summarising its findings from a themed inspection of the SRP market. The inspection found that there has been a move towards the sale of more complex, capital at risk products, that many firms operating in the market have weak product governance arrangements in respect of these riskier products and that firms may be selling SRPs to consumers that may not be suitable for them. The CBI has stated that all firms should consider the issues identified in the inspection and take any necessary action to ensure that consumers are protected.
UK Financial Conduct Authority confirms its implementation of MiFID II
The FCA has confirmed it will implement MiFID II despite the UK's departure from the EU, publishing a second consultation paper on the topic. The FCA intends to update its handbook to reflect the changes brought in by MiFID II and warned that firms need to fulfil their legal responsibilities from 3 January 2018 when the directive takes effect. On the publication of the Consultation Paper Andrew Bailey, CEO of the FCA stated that firms must continue to "abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.” The closing date for responses to the Consultation Paper is 28 October 2016.
European Parliament Economic and Monetary Affairs Committee rejects Regulatory Technical Standards on Packaged Retail and Insurance-based Investment Products
The EU Parliament's Economic and Monetary Affairs Committee (ECON) has approved a motion to reject the Final RTS on the PRIIPS Regulation, despite its adoption by the EU Commission in June 2016. Members of the ECON committee have outlined their support for the PRIIPS regulation but have expressed concerns about the methodology underlying the performance scenarios – which proposes that past performance figures be replaced with 'future performance scenarios' in the Key Information Documents. This motion follows significant objections by the asset management industry to the methodology. Following this rejection of the RTS the matter will go to a full vote of the EU Parliament at its 12 September plenary session. The PRIIPS legislation is currently due to take effect on 31 December 2016 – requests for delays in its implementation had been previously rejected by the EU Commission.
European Commission reports on the remuneration rules for credit institutions and investment firms
The European Commission issued a report in accordance with its obligations under Article 161(2) of the Capital Requirements Directive (CRD) which requires the Commission to report to the European Parliament and Council on the efficiency, implementation and enforcement of the remuneration rules, and in particular on the impact of the maximum ratio between variable and fixed remuneration. The report contains a mostly positive assessment of the rules on remuneration introduced by CRD III in 2010. However, it is also stated that the deferral and pay-out instruments requirements may be inefficient in the case of small and non-complex credit institutions and investment firms, and of staff with low levels of variable remuneration. The Commission has undertaken to carry out an impact assessment examining options for addressing these issues, including exempting these smaller institutions and their staff from some of these requirements.
In respect of the maximum ratio between variable and fixed remuneration introduced by CRD IV, the report provides that there is not enough evidence to draw final conclusions until more implementation experience is gained.
European Securities and Markets Authority publishes updated Q&A on contracts for difference and other speculative products
ESMA has updated its Q&A document for competent authorities on the application of the Markets in Financial Instruments Directive (MiFID) to the marketing and sale of CFDs and other speculative products to retail clients. The additional guidance provided in this document relates to the information to be provided to clients about how CFDs work, the assessment of a retail client's ability to understand risks and the factors which must be considered when offering CFDs to retail clients.
European Commission responds to European Supervisory Authorities in relation to draft RTS on risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty
In March, the EBA, EIOPA and ESMA (together, the European Supervisory Authorities), submitted to the Commission draft RTS on risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty, pursuant to Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR Regulation). The Commission has responded to the European Supervisory Authorities stating its intention to endorse the draft RTS with some amendments. The amendments are mainly for the purposes of clarification and to restructure the legal text in line with applicable principles of legislative drafting.
European Commission adopts Implementing Regulation establishing a list of critical benchmarks to be used in financial markets
On 11 August, the Commission adopted an Implementing Regulation establishing a list of ‘critical’ benchmarks, i.e. indexes that are of particular importance for financial markets and consumer contracts, pursuant to the Benchmark Regulation (Regulation (EU) 2016/1011). The Benchmark Regulation is not applicable in its entirety until January 2018.
ESMA updates its Q&A on the European Markets Infrastructure Regulation
ESMA has released an update of its Q&A on questions regarding EMIR. The purpose of the Q&A and associated updates is to promote consistent practices and supervision in the application of EMIR. The document responds to questions asked by different interested parties such as competent authorities, the general public and market participants.
For further information please contact a member of the Financial Regulation team.
Date published: 06 Sep 2016