Securities Lending Times | AFME warns ESMA to not be overzealous in MiFIR reforms

The Association for Financial Markets in Europe (AFME) has responded to the European Securities and Markets Authority’s (ESMA) consultation paper on the provision of investment services and activities in the EU by third-country firms under the second Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments (MiFIR).

The changes to MiFIR and MiFID II regimes include new reporting requirements from third-country firms on an annual basis in accordance with Article 46 of MiFIR, and also grants ESMA the power to ask third-country firms in its register to provide data relating to all orders and all transactions in the EU, whether on their own account or on behalf of a client, for in the past five years.

AFME explains that the equivalence framework should be proportionate in the requirements imposed on third-country firms so as to avoid discouraging firms from utilising the framework, to the detriment of EU professional investors and eligible counterparties and markets.

According to the association, a well-calibrated equivalence framework is one which is proportionate in the requirements imposed on third-country firms, given that one of the purposes of the equivalence framework is to avoid the complexities of third-country firms seeking authorisation within the EU.

This will enable EU professional investors and eligible counterparties to access international capital and liquidity, investment and funding opportunities, AFME says.

“Not only is this complementary to the EU’s objective to increase the size and capacity of capital markets through the Capital Markets Union, but it also allows for better prudential risk management and transmission of shocks across different regions through access to a greater pool of liquidity,” it adds.

The current volatility in financial markets, caused by the global COVID-19 pandemic, further illustrates the importance of access to deep pools of liquidity across markets.

However, in its response, AFME suggested that ESMA’s information requirements appear disproportionate not just in relation to the authority’s tasks under MiFIR, but also in relation to the activities provided by relevant third-country firms.

“Many of the specific information requirements make no reference to an EU nexus and/or do not contain a materiality threshold, making compliance unduly onerous for third-country firms”, AFME notes.

Read AFME’s full comment to the individual consultation questions

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