European Supervisory Authorities Request Response from European Commissioner to Inconsistencies in Cross-Selling Legislation

On 26 January 2016, the Chairpersons of the European Supervisory Authorities (ESAs) (i.e. EBA, EIOPA and ESMA) sent a letter to the European Commissioner for the Directorate General Financial Stability, Financial Services and Capital Markets Union.

The letter flags up that differences in primary legislation currently preclude the ESAs from developing consistent guidelines on cross selling across the investments, insurance and banking sectors in the EU and asks that the Commission look into the differences in financial services legislation and consider the steps required in order to guarantee that the ESAs are fully equipped to regulate these practices, to the benefit of consumers, financial institutions and supervisory authorities. The ESAs suggest that the Commission may have an opportunity to review these matters as part of its follow up to its September 2015 call for evidence on the EU framework for the regulation of financial services and its December 2015 green paper on retail financial services.

ESMA and South African and Mexican Authorities to Cooperate Under EMIR on CCPs

On 26 January 2016, ESMA announced that had entered into a memorandum of understanding (MoU) with each of the Mexican Comisión Nacional Bancaria y de Valores (CNBV) and the South African Financial Services Board (FSB) under the European Markets Infrastructure Regulation (EMIR).

EMIR provides for co-operation arrangements to be established by ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission. The memoranda set out the terms on which the two authorities will cooperate and share information with ESMA regarding Central Counterparties (CCPs) which are authorised or recognized in Mexico or South Africa, and which have applied for EU recognition under EMIR. As well as establishing these arrangements, the MoUs provide ESMA with adequate tools to monitor the on-going compliance by the CCPs with the recognition conditions contained in EMIR. The MoU with FSB entered into force on 30 November 2015 and the MoU with the CNBV entered into force on 25 January 2016.  Press release. CNBV MoU. FSB MoU.

ESMA Opinion Highlights Differences with the European Commission on the Main Indices and Recognized Exchanges Under CRR

On 19 December 2014, the European Securities and Markets Authority (ESMA) submitted to the European Commission draft implementing technical standards (ITS), pursuant to the Capital Requirements Regulation 575/2013, specifying a list of main indices and recognized exchanges. On 17 December 2015, the European Commission informed ESMA of its intention to amend the draft ITS by including two additional equity indices (the Russell 3000 Index and the Hang Send Composite Index). In an opinion (ESMA/2016/163), published on 29 January 2016, ESMA made recommendations in response to this intention.

ESMA argues that the Russell 3000 Index and the Hang Send Composite Index should not be included in the ITS on the grounds that these indices do not contain relatively liquid instruments in an EEA economy, given that they are mainly composed of US and Asian Stocks. Instead, ESMA suggests adding four other additional indices (Russell 1000 Index, Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and FTSE Nasdaq Dubai UAE 20 Index), and replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA’s opinion recognizes the value of incorporating a large number of indices as this will cast a wider net of eligible collateral that European banks can use.

Finally, given the frequency with which updates to ITS are needed, ESMA suggests that the Commission reviews the regime to avoid each modification requiring a full legislative cycle.

European Commission Letter to ESMA on Application of AIFMD Passport

On January 19, ESMA published a letter it has received from the European Commission relating to the application of the EU passport under the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”) to non-EU alternative investment fund managers (“AIFMs”) and alternative investment funds (“AIFs”).

The Commission stated that with regard to the advice on granting the AIFMD passport to managers and funds established in third countries, it agrees that the country-by-country approach adopted by ESMA is correct. It noted that the nature of the test set out in Article 67 of the AIFMD may result in different outcomes depending on the regulatory and supervisory framework of the third countries in which non-EU AIFMs and funds are established.

The Commission stated that it will take a decision [as to whether the AIFM Directive passporting regime should be extended to the management and marketing of AIFs by non-EU AIFMs, and to the marketing of non-EU AIFs by EU AIFMs] when a sufficient number of countries have been appropriately assessed.

The Commission invites ESMA to:

  • Complete, by June 30, 2016, the assessment of the USA, Hong Kong, Singapore, Japan, Canada, Isle of Man, Cayman Islands, Bermuda and Australia.
  • Provide a more detailed assessment of the capacity of supervisory authorities and their track record in ensuring effective enforcements, including in those countries looked at in the first wave of countries.
  • Provide a preliminary assessment of the expected inflow of funds by type and size into the EU from relevant third countries.

The letter concludes with the Commission agreeing with ESMA’s suggestion that it produces another opinion on the functioning of the passport and national private placement regimes once the AIFMD is fully transposed in all member states and there is more experience on the functioning of the framework. (An accompanying press release explains that ESMA suggested it produce another opinion because the delay in implementing the AIFMD, together with the delay in its transposition in some member states, made it difficult for ESMA to provide a definitive assessment by July 2015, the initial legislative deadline).

ESMA Publishes Peer Review Report on Compliance with SSR Regarding Market Making Activities

On January 5, the European Securities and Markets Authority (“ESMA”) published a peer review report aimed at assessing how national competent authorities (“NCAs”) apply the exemption for market making activities foreseen in Article 17 of the Short Selling Regulation (SSR).  The report reviewed whether the NCAs are applying the general principles and criteria of eligibility for the exemption in compliance with the corresponding ESMA Guidelines and to identify good practices.

The report concluded that all NCAs have dedicated resources and have designed processes to handle the notification of exemptions and the notification functions are staffed with capable, knowledgeable and committed staff and that there are a number of approaches taken by NCAs.

The report highlighted some areas for concern, including: NCAs are not properly seeking assurance, in advance, that market makers seeking an exemption comply with the organizational requirement of the ESMA Guidelines; and many NCAs are too reliant on monitoring by trading venues rather than monitoring by the NCAs themselves. Report.

ESMA Responds to Prospective Directive and Securitization Consultations

ESMA has responded to the European Commission’s consultations on the Prospective Directive and Securitization, recommending, in relation to prospectuses, an approach that would facilitate access to capital, while stressing the need for maintaining a robust level of investor protection.  It argues that the prospectus should be more comprehensible, focusing on the actual purpose of the prospectus while reducing the burden on issuers where possible. On securitization, ESMA emphasized the need to assess the full impact of ongoing reforms, and to provide investors with incentives to conduct adequate risk surveillance, monitor ongoing risks and perform thorough due diligence of their securitization investments.

ESMA Publishes an Opinion on Draft RTS on Clearing of Interest Rate Swaps under EMIR

Article 5(2) of Regulation (EU) No 648/2012 (EMIR) requires the European Securities and Markets Authority (ESMA) to develop draft regulatory technical standards specifying, inter alia, the class of OTC derivatives that should be subject to the clearing obligation, the date or dates from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies.

In October 2014, ESMA submitted a draft regulatory technical standard (RTS) on the clearing obligation in respect of interest rate swaps to the European Commission. On 18 December 2014, the Commission submitted to ESMA a modified version of the RTS (the “modified RTS”) introducing, among others, (1) amendments to the date on which the frontloading obligation starts to apply and (2) a new provision on the treatment of non-EU intragroup transactions. In the modified RTS, the Commission proposed that for a period of maximum three years, any third country shall be deemed equivalent within the meaning of Article 13(2) of EMIR. The effect would be to allow, for a period of three years, financial counterparties to apply for the intra-group exemption in respect of their transactions with any third-country entity in the absence of decisions on equivalence.

On January 29, ESMA published an opinion on the modified RTS stating that ESMA considers that the Commission’s proposal in relation to non-EU intra group transactions is not appropriate from a legal perspective. ESMA noted that (i) the adoption by the Commission of implementing acts on equivalence under Article 13 is the only procedure envisaged under EMIR to establish whether third-countries can be considered as having legal, supervisory and enforcement frameworks equivalent to EMIR; and (ii)any provision that has an effect equivalent to that of an implementing act on equivalence under Article 13, although limited in time and scope, but without the examination procedure referred to in Article 13(2), may have unintended consequences and therefore requires a very careful review. ESMA will explore, in coordination with the Commission, a different manner to incorporate that provision.  Opinion.

ESMA Publishes Final Technical advice on the MiFID II Directive and MiFIR

On December 19, 2014, the European Securities and Markets Authority (ESMA) published final technical advice (ESMA/2014/1569) to the European Commission and a consultation paper (ESMA/2014/1570) on the MiFID II Directive (2014/65/EU) and MiFIR (the Markets in Financial Instruments Regulation (Regulation 600/2014).

The consultation paper includes draft regulatory technical standards (RTS) and implementing technical standards (ITS) under the MiFID II Directive and MiFIR.  The consultation paper invites responses to the draft RTS and ITS by March 2, 2015, and responses will be used to finalise the draft RTS which will be sent to the Commission for endorsement by the middle of 2015.  Technical AdviceConsultation Paper.

ESMA Publishes Technical Advice on MiFID II

The European Securities and Markets Authority (“ESMA“) published final technical advice on December 19 to the European Commission, and a consultation paper on the MiFID II Directive and the Markets in Financial Instruments Regulation (“MiFIR“).

The consultation paper includes draft regulatory technical standards and implementing standards under the MiFID II Directive and MiFIR. Consultation closes on March 2. The accompanying press release is found at the following link: press release.

ESMA Call for Evidence on AIFMD Passport and Third Country AIFMs

On November 7, the European Securities and Markets Authority (ESMA) published a call for evidence on the EU passport under the Alternative Investment Fund Managers Directive (AIFMD) and third country Alternative Investment Fund Managers (AIFMs).

Under the AIFMD, non-EU AIFMs and non-EU Alternative Investment Funds (AIFs) managed by EU AIFMs are subject to the national private placement regime of each of the member states where the AIFs are marketed or managed. However, the AIFMD makes provision for the passport to be potentially extended in the future.

Responses to the call for evidence from the EU and the non-EU stakeholders (as well as ongoing input ESMA is receiving from national competent authorities) will help ESMA develop the opinion and advice it is required to deliver to the European Commission.

The deadline for responses to the call for evidence is January 8, 2015.  ESMA will consider the feedback it receives to the call for evidence in the first quarter of 2015.  It is required to deliver the opinion and the advice to the Commission by July 22, 2015.  Call for Evidence.