ESMA

ESAs Publish 2016 Annual Reports

 

On June 15, 2017, ESMA, EIOPA and the EBA (the European Supervisory Authorities (“ESAs“)) each published their annual reports outlining the relevant ESA’s objectives, activities and key achievements in 2016.

ESMA’s annual report summarizes the work carried out by ESMA in 2016 under each of the following activities:

  • Assessing risks to investors, markets and financial stability.
  • Creating a single rule book.
  • Promoting supervisory convergence.
  • Supervising credit rating agencies and trade repositories.

The EBA’s annual report outlines the EBA’s work in 2016, which included:

  • Completing the single rule book applicable to the EU banking sector.
  • Supporting the finalization of the Basel III package of measures and its implementation in the EU.
  • Enhancing its monitoring of different aspects of the single rule book, including on own funds, remuneration practices and significant risk transfers in securitizations.
  • Improving its role in monitoring and assessing key risks in the banking sector across the EU.
  • Monitoring financial innovation and contributing to secure and efficient retail payments in the EU.

EIOPA’s annual report outlines the EIOPA’s work associated with the implementation of the Solvency II Directive (2009/138/EC) on January 1, 2016, such as the secure collection and storage of data. Other areas of work included:

  • The calculation and publication of risk-free rates on a monthly basis.
  • An EU-wide insurance stress test.
  • The development of a macro-prudential approach to the low interest rate environment in Solvency II.

Advice to the European Commission on a number of issues, including the development of a pan-European personal pension product and, within the context of the Joint Committee of the ESAs, on the key information documents for packaged retail and insurance-based investment products.

ESMA Consults on Guidelines on CCP Conflicts of Interest Management Under EMIR

 

On June 1, 2017, ESMA published a consultation paper (ESMA70-151-291) on guidelines relating to central counterparties (“CCPs“) management of conflicts of interest.

ESMA explains that the European Market Infrastructure Regulation (“EMIR“) only contains generic provisions relating to CCPs’ conflict of interest management. It requires CCPs to act in the best interests of their clearing members and the clients. Therefore, CCPs need to have in place robust organizational arrangements and policies to prevent potential conflicts of interest and to solve them if they occur. ESMA believes that further guidance would be beneficial and further facilitate supervisory convergence on this area.

The purpose of the guidelines is to set out the criteria CCPs should apply to avoid or mitigate the risks of conflicts of interest and to ensure a consistent implementation across CCPs. Areas addressed by the guidelines include:

  • written arrangements to identify and manage any potential conflicts of interest between CCPs, clearing members and clients;
  • where written arrangements are not sufficient, disclosure of conflicts of interest to the clearing member or clients before entering into any new transactions; and
  • possible conflicts with a CCP’s parent undertaking or subsidiary.

The consultation will close on August 24, 2017, upon which ESMA will consider the feedback received to the consultation. ESMA expects to publish a final report on the guidelines by the end of 2017.

EIOPA Publishes Guidance on Authorization and Supervision in Light of Brexit

 

On May 25, 2017, it was reported on Reuters that the European Insurance and Occupational Pensions Authority (“EIOPA“) is to publish guidance directed to national regulators on the principles for authorization and supervision to ensure that they do not undercut one another in their attempts to attract firms moving from London due to Brexit. EIOPA is monitoring developments in this area and will publish guidance in due course.

According to Reuters, the European Securities and Markets Authority (“ESMA“) is also to publish guidelines on this issue before the summer. ESMA’s chairman has said it has discussed the potential risks of new “letter box” companies being set up in the EU, which would delegate key operations to group companies in London. ESMA warns that these arrangements could undermine stability.

ESMA Issues Report on Distributed Ledger Technology

 

On February 7, 2017, the European Securities and Markets Authority (“ESMA“) published a report regarding distributed ledger technology (“DLT“).

DLT is a developing technology that has the potential to significantly alter and bring a number of benefits to securities markets. These benefits include, among others, enhanced efficiency in post‑trade processes, enhanced reporting and reduced costs. With these prospective benefits, however, come potential risks and legal questions.

ESMA has therefore issued a report that summarizes its position on DLT, with a note that it will continue to monitor this dynamic technology and consider whether a regulatory response may become a necessity.

The full report is available here.

ESMA Publishes Guide on Major Holdings Notifications

 

On February 3, 2017, a guide was published by ESMA that looked at major holdings notifications under the Transparency Directive. The Transparency Directive established a minimum level of information that needed to be provided to the public in relation to securities across the EU, and the recently issued guide discusses requirements that vary from country to country within the EEA and will assist readers in establishing the different requirements.

The guide, which is available here, summarizes the national requirements in relation to making and publishing notifications of major holdings.

ESMA Publishes Opinion on the Effect of Excluding Fund Managers From the Scope of MiFIR Intervention Powers

 

On January 12, 2017, the ESMA published an opinion on the impact of exclusion of fund management from the entire scope of MiFIR (Markets in Financial Instruments Regulation) (Regulation 600/2014).

Although, under Articles 40 and 42 of MiFIR, the ESMA and other NCAs (national competent authorities) can prohibit and restrict the sale, marketing and/or distribution of specific financial instruments or shares in Alternative Investment Funds (AIFs), this power applies only to credit institutions and MiFID firms and excludes from its scope any alternative investment fund managers that might be authorized under the AIFM Directive (2011/61/EU) or to UCITS management companies so authorized under the UCITS IV Directive (2009/65/EC).

The ESMA has commented with the opinion that the intervention powers within MiFIR may create arbitrage situations between fund management companies themselves, as well as between fund management companies and MiFID firms. It has also stated that both the ESMA and relevant NCAs should be given the power to apply the restrictions under MiFIR directly to fund management companies.

ESMA Publishes New Methodology for Mandatory Peer Reviews of CCPS Authorization and Supervision Under EMIR

 

On January 5, 2017, the European Securities and Markets Authority (“ESMA“) published its methodology (ESMA71-1154262120-155) for mandatory peer reviews relating to the authorization and supervision of central counterparties (“CCPs“) under the European Market Infrastructure Regulation (“EMIR“) (the Regulation on OTC derivative transactions, CCPs and trade repositories (Regulation 648/2012)).

The scope of peer reviews under EMIR is defined, and ESMA has a specific role to further supervisory cooperation. Based on the experience of the first peer review undertaken in 2016 in the context of EMIR, ESMA’s Board of Supervisors decided that a methodology for the new type of peer reviews should build on the existing methodology. Further reviews will be conducted on, at least, a yearly basis.

The methodology sets out information relating to the legal basis and scope of the review, the topics covered, the assessment specifications and the approach taken to the questionnaire and report.

The application of the methodology will be restricted to peer reviews undertaken in the application of Article 26 of EMIR. This scope may be reconsidered by ESMA at a later date, when the mandatory peer reviews relating to other EU legislation need to be launched (for example, in relation to the Alternative Investment Fund Managers Directive (2011/61/EU) and the Regulation on improving securities settlement and regulating central securities depositories (Regulation 909/2014)).

ESMA Consultation on Consolidated Tape for Non Equity Products RTS Under MiFID II: Responses

 

On December 8, 2016, ESMA published the responses it has received to its consultation on draft regulatory technical standards (RTS) specifying the scope of the consolidated tape for non‑equity financial instruments under Article 65(8)(c) of the MiFID II Directive (2014/65/EU).

Respondents include:

  • The Investment Association;
  • International Capital Market Association;
  • Wholesale Markets Brokers’ Association (WMBA)
  • Association française des investisseurs institutionnels; and
  • Deutsche Börse Group.

ESMA will use the feedback it receives to finalize the draft RTS, which will be submitted to the Commission for endorsement. The date of application of MiFID II Directive and MiFIR is January 3, 2018.

European Commission Adopts Delegated Regulation on RTS on Criteria for Establishing When an Activity Is Considered to Be Ancillary to the Main Business

 

The European Commission adopted, on December 1, 2016, a Delegated Regulation supplementing the MiFID II Directive (2014/65/EU) in relation to regulatory technical standards (“RTS“) on the criteria for establishing when an activity is considered to be ancillary to a firm’s main business (C(2016) 7643 final).

The MiFID II Directive exempts persons dealing on their own account, or providing investment services to clients, in commodity derivatives and emission allowances, provided that activity is ancillary to their main business and their main business is not the provision of investment services or banking activities. Article 2(4) of the MiFID II Directive gives the Commission power to adopt RTS specifying the criteria for establishing when an activity is to be considered ancillary to the main business of a group.

ESMA submitted draft RTS to the Commission in September 2015. The Commission notified ESMA in April 2016 that it intended to endorse the draft RTS, subject to several amendments being made. In May 2016, ESMA submitted a formal opinion and a revised draft of the RTS to the Commission.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulation. Should neither of them object, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ) and will apply from January 3, 2018.

ESMA Issues Final Guidelines on Inside Information and Commodity Derivatives under MAR

On September 30, 2016, the European Securities Markets Authority (“ESMA“) published final guidelines (ESMA/2016/1412) on information relating to commodity derivatives disclosable under the Market Abuse Regulation (Regulation 596/2014) (“MAR“).

Article 7(5) of MAR requires ESMA to issue guidelines to establish a non-exhaustive list of information that is reasonably expected or required to be disclosed in accordance with legal or regulatory provisions in EU or national law, market rules, contract, practice or custom, on the relevant commodity markets or spot markets.

ESMA expects market participants, investors and regulators to take the list of examples provided in the guidelines into account when assessing whether information is “inside” information. It should be noted that other conditions of the definition not covered by the new guidelines should also be taken into account.

ESMA also explains that the guidelines do not create any further information disclosure requirements, as the concept of “required to be disclosed” refers to existing or future disclosure requirements (such as, under national law), independent of the guidelines.

National competent authorities (“NCAs“) have two months from the issuance of the different language versions of the guidelines to confirm whether or not they intend to comply with them. If a NCA does not comply or does not intend to comply, it will have to inform ESMA, stating its reasons.

ESMA consulted on the guidelines in March 2016 (ESMA/2016/444).