ESMA Says PRIIPS Prep Is A Top Priority For 2017

Law360, London (June 15, 2017, 5:26 PM BST) —

The European Securities and Markets Authority said Thursday that one of its top priorities for 2017 is preparing for the introduction of stricter rules for the marketing of financial products to investors across the European Union.

In its 2016 annual report, ESMA said it will focus on increasing investor protection in the asset management sector in the coming year by improving transparency on costs, both for fees and performance ahead of EU disclosure requirements for investment funds that take effect in January 2018.

The packaged retail and insurance-based investment products, or PRIIPS, legislation is part of the EU’s sweeping financial markets reforms, passed to boost trading transparency and cut systemic risk.

The rules flesh out EU regulation passed in 2014 that created the so-called Key Information Document, which standardizes and simplifies the information financial services firms and insurers have to use when promoting products such as investment funds and structured securities to retail investors in an $11 trillion market.

“As PRIIPs enters into force in 2018, preparing these new rules is high on our agenda in 2017,” ESMA said in its annual report.

Europe’s top securities watchdog, together with the European Banking Authority and European Insurance and Occupational Pensions Authority, designed the rules, which were then put forward by the European Commission.

But the measures have proved controversial, prompting the rules to be delayed by one year after complaints from both consumer and industry groups about the kind of information that could and couldn’t be included in the investor disclosures.

Looking forward to 2017, ESMA said strategy and governance will be a key theme for credit rating agencies, or CRAs, and trade repositories, or TRs, particularly in light of the U.K.’s decision to leave the EU.

“We will also focus on the quality of ratings, internal controls and risk assessment for CRAs, and data quality, technology trends and internal control for TRs,” the report said.

ESMA said it will also prepare for the implementation of the bloc’s vast updated derivatives rulebook, known as the Markets in Financial Instruments Directive, or MiFID II.

This includes approving opinions on position limits and waivers, clarifying issues through question and answer documents and developing IT infrastructure to collect, process and publish financial instruments’ data.

Britain’s decision to leave the EU, which is due to take place by March 2019, has shifted ESMA’s focus towards supervisory convergence, and avoiding regulatory arbitrage of firms wishing to relocate to EU countries offering the lightest touch regulation.

It said it will also need to rethink the framework for third countries, or countries outside the EU, in financial markets legislation including, strengthen supervisory tools and introduce regular enforcement powers regarding certain third country entities.

Europe’s executive arm outlined plans on June 13 that would force clearinghouses, which stand between buyers and sellers in derivatives trades and form a key part of the plumbing that underpins Europe’s financial markets, to relocate to the bloc after Brexit if tougher oversight fails to work.

Under the plans, clearinghouses dealing in euro-denominated transactions that are based outside the EU will be subjected to enhanced supervision by a newly created unit within the European Securities and Markets Authority that includes new supervisory powers.

–Editing by Rebecca Flanagan.

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