ESMA Speech on Brexit, Transaction Cost Transparency and Review of ESAs


On March 21, 2018, the European Securities and Markets Authority (“ESMA“) published a speech by Steven Maijoor, ESMA Chair, on, among other things, supervisory convergence in the context of Brexit, transaction cost transparency and the review of the European Supervisory Authorities (“ESAs“) (that is, ESMA, EIOPA and the EBA). The speech is available here.

Points of interest in the speech include:

  • Supervisory convergence. While financial centres in the EU27 should be free to compete based on the strengths they can offer firms relocating from the UK as a result of Brexit, the EU rulebook should always be applied consistently. Regulatory or supervisory arbitrage should not feature in firms’ contingency plans. ESMA does not wish to question or undermine the delegation model under the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD“). Instead, it seeks to avoid the creation of “letterbox entities” (whereby an alternative investment fund manager (“AIFM“) delegates its functions to the extent that, in essence, it is no longer the manager of the relevant alternative investment fund (AIF)). To mitigate the risks to supervisory convergence from Brexit, ESMA has created the Supervisory Coordination Network (“SCN“).
  • Transaction cost transparency. In Mr. Maijoor’s view, the changes to cost transparency introduced by MiFID II (that is, the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“)) and the Regulation on key information documents (or “KIDs“) for packaged retail and insurance-based investment products (“PRIIPs“) (Regulation 1286/2014)) are already having a positive impact. For example, the new model of payments for research should help ensure better use of firms’ research budgets, while the KIDs have given investors a complete picture of the costs of the investment product they are buying. ESMA notes the concerns that have been expressed in relation to negative transaction cost figures, but in the absence of evidence to the contrary, believes that these should be extremely rare and that the methodology is sound.
  • Review of the ESAs. Mr. Maijoor expresses confidence that ESMA would be able to deploy the proposed new convergence powers on delegation arrangements efficiently and proportionately. For example, ESMA has used the opinion tool to ensure consistency in the granting of pre-trade transparency waivers to trading venues. Under the proposed new funding model, ESMA would be able to expand its supervisory convergence activities, which would ultimately help to advance the capital markets union (“CMU“) project.