Financial Services Regulation and Compliance – Investment Firms Oct 2020


Markets Updates, Issues 10 and 11

The CBI has published issues 10 and 11 of its Markets Updates for 2020. In domestic news, issue 10 focuses on new additions to the list of pre-approval control functions, while issue 11 highlights the outcome of the CBI’s thematic review of fund management companies. Internationally, both issues 10 and 11 focus on a multitude of ESMA updates.

Steven Maijoor addresses Irish Funds Annual Global Funds Online Conference

Steven Maijoor, chair of ESMA, delivered a keynote address at the Irish Funds Annual Global Online Conference, focusing on topics such as investor protection, transparency, financial literacy and the role of pensions in the Capital Markets Union (CMU). Maijoor also cautioned against proposals to reform MiFID client categories, noting any potential reform would increase the complexity of the MiFID framework and risk undermining investor protection.


ESMA issues public statements on the impact of Brexit on the application of MiFID II/MiFIR and the Benchmarks Regulation

The European Securities and Markets Authority (ESMA) has issued a statement on its approach to the application of certain key MiFID/MiFIR provisions after the end of the transition period on 31 December 2020 in the agreement for the withdrawal of the UK from the EU.

The statement provides an update to previous statements issued by ESMA on 7 March 2019 and 7 October 2019 and covers:

  • the C(6) carve out
  • the ESMA opinions on third country trading venues for the purposes of post-trade transparency
  • the position limits regime and post-trade transparency for over the counter transactions

The statement also covers on the implementing technical standards and recognised exchanges under the Capital Requirements Regulation (CRR).

ESMA also issued a separate updated statement on the consequences of Brexit for the ESMA register for benchmark administrators and third country benchmarks under the Benchmarks Regulation.

ESMA responds to EU Green Bond Standard consultation

ESMA has responded to the European Commission’s targeted consultation on the establishment of the EU green bond standard (GBS). ESMA made a number of specific points in its response while noting that the success of the GBS will be determined by whether it is seen as a reliable indicator of investment in sustainable economic activities.

ESMA publishes work programme for 2021

ESMA has published its work programme for 2021, setting out its priorities and areas of focus for the next 12 months.

ESMA’s planned activities for 2021 include:

  • developing the retail investor base to support the capital markets union (CMU)
  • promoting sustainable finance and long term oriented markets
  • dealing with the opportunities and risks posed by digitalisation
  • strengthening the EU’s role in global capital markets and ensuring a proportionate approach to regulation

In a press release accompanying the work programme, ESMA chair Steven Maijoor noted that ESMA had additional supervisory responsibilities in the areas of central counterparties, benchmarks and securitisation repositories. Maijoor also indicated that addressing the impact of Brexit and COVID-19 on the EU’s markets and investors would be a key focus for ESMA in the coming year.

ESMA publishes updated Q&As on securitisation topics and guidelines on portability of information between securitisation repositories

ESMA has published a new Q&A on securitisation topics. The Q&A provides guidance on how to report certain underlying exposures which benefit from a COVID-19-related debt moratorium or payment holiday.

ESMA has also published its final report on guidelines on portability of information between securitisation repositories under the Securitisation Regulation. The guidelines set out common provisions that a securitiations repository (SR) should follow when transferring securitisation information to another SR. The guidelines were updated to provide more clarity for market participants following a public consultation.

ESMA issues latest Double Volume Cap data

ESMA has updated its public register with the latest set of double volume cap (DVC) data under MiFID II. The updates include DVC data and calculations for the period 1 September 2019 to 31 August 2020. The number of new breaches is 28:20 equities for the 8% cap, applicable to all trading venues, and eight equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 12 October 2020 to 11 April 2021. As of 7 October 2020, there are a total of 268 instruments suspended.

European Council agrees position on capital markets recovery package

The European Council has lent its full political support to the European Commission’s capital markets recovery package. The package, which was first proposed by the Commission in July, contains amendments to MiFID II, the Prospectus Regulation and the securitisation framework laid down by the Securitisation Regulation and the Capital Requirements Regulation. These amendments include:

  • simplified information requirements under MiFID II
  • the introduction of the ‘EU Recovery Prospectus’ to facilitate companies issuing capital to meet their funding needs
  • the extension of the EU framework for simple, transparent and standardised (STS) securitisations to synthetic securitisations
  • the removal of regulatory obstacles to the securitisation of non-performing exposures (NPEs)

ESMA consults on CCP supervisory review and evaluation process

ESMA has launched a consultation on guidelines addressing the consistency of supervisory review and evaluation processes of central counterparties (CCPs) under Article 21 of EMIR. The consultation is seeking input from all interested stakeholders on draft guidelines aimed at clarifying procedures and methodologies for the supervisory review and evaluation of CCPs by competent authorities.

The closing date for responses is 16 November 2020. ESMA will consider the feedback it receives in the consultation and aims to finalise the guidelines by Q1 2021.

ESMA consults on standards for CCP activities and model amendments

ESMA has launched a consultation on draft regulatory technical standards (RTS) relating to changes to central counterparties’ (CCPs) activities and models. The RTS will apply to CCPs seeking to add additional services or activities to their business which are not covered by their initial authorisation. ESMA is seeking input on the RTS regarding:

  • the conditions under which additional services or activities require an extension of authorisation and the corresponding college consultation procedure
  • the conditions under which changes to the models and parameters are significant and therefore require authorisation and the corresponding college consultation procedure

The closing date for responses to the consultation is 16 November 2020.

ESMA sets out final position on share trading obligation

ESMA has issued a public statement to remind market participants of the application of the EU trading obligation for shares (STO) as of 1 January 2021. In the statement, ESMA notes that, in the absence of an equivalence decision in respect of the UK by the European Commission, the potential adverse effects of the application of the STO after the end of the transition period are expected to be the same as in a no-deal Brexit scenario. In that context, ESMA notes that its guidance published on 29 May 2019 to mitigate risks and minimise disruption remains relevant.

ESMA postpones applicability of EMIR Reporting Validation Rules

ESMA has postponed the applicability date of the EMIR validation rules until 8 March 2021. The amended rules, which were published by ESMA on 10 September 2020, will apply 5 weeks later than originally planned, as a result of technical issues arising from the UK’s withdrawal from the EU.

ESMA adds UK venues to opinions on third country trading venues

ESMA has updated the list of third-country venues (TCTV) in its opinions on post-trade transparency and position limits under MiFID II and MiFIR. The UK venues have received a positive assessment and have been added to:

  • the annex to the opinion relating to post-trade transparency
  • the annex to the opinion relating to position limits

ESMA updates statement to address credit ratings from the United Kingdom

ESMA has published an update to its March 2019 statement on the endorsement of credit ratings from the United Kingdom. The previous statement has been updated to provide clarity on whether endorsement can proceed following the end of the transition period on 31 December 2020.

ESMA publishes annual statement on European common enforcement priorities

ESMA has issued its annual public statement on European common enforcement priorities. The statement sets out the priorities that EEA corporate reporting enforcers will consider when examining the 2020 annual financial reports of listed companies

The key areas of focus identified in the statement are:

  • issues relating to the application of IAS 1 (Presentation of Financial Statements), IAS 36 (Impairment of Assets), IFRS 9 (Financial Instruments), IFRS 7 (Financial Instruments) and IFRS 16 (Leases)
  • the requirement to disclose information on non-financial issues such as the impact of the COVID-19 pandemic on non-financial matters, the impact of remote-working arrangements and risks relating to climate change
  • ESMA’s expectation that issuers consider its COVID-19 related recommendations from March on the implications for the calculation of expected credit losses and its May statement on half-yearly financial reports

The statement also highlights that it is important for issuers to closely monitor Brexit negotiations and to provide disclosures on the impact of those negotiations on issuers’ activities, financial and non-financial information.

ESMA submits two draft technical standards under the revised Market Abuse Regulation to the European Commission

ESMA has published its final report on the amendments to the Market Abuse Regulation (MAR) for the promotion of the use of SME growth markets. The report is accompanied by draft regulatory technical standards (RTS) on liquidity contracts and draft implementing technical standards (ITS) on insider lists.

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