INVESTMENT SERVICES & CAPITAL MARKETS
MIFID II/MIFIR
European Commission call for advice to ESMA on retail investor protection
On 2 August 2021, ESMA published a call for advice from the European Commission on its strategy for retail investments in the EU.
The European Commission invites ESMA to provide advice on:
- Addressing and enhancing investor engagement with disclosures: identification of any significant overlaps, gaps, redundancies and inconsistencies across investor protection legislation that might have a detrimental effect on investors (i.e. which might confuse or hamper decision-making or comparability), how the different legal frameworks fit together and options as to how to remedy any identified shortcomings.The European Commission invites ESMA to reflect on whether the rules have fully attained the objective of ensuring that consumers can make informed choices and adequately reflect behavioural insights, avoid information overload and overly complex information, and the specific challenges for different types of products.
- Drawing out the benefits of digital disclosures: an assessment of how regulatory disclosures and communications can work best for consumers in a digital, and in particular smartphone, age, and proposed options as to how existing rules might be adapted, such as allowing layered information.
- Assessing the risks and opportunities presented by new digital tools & channels: an assessment of both risks and opportunities with respect to retail investing stemming from both the increasing availability of digital tools and the increasing levels of direct investor participation, in particular via online trading platforms and robo advisors. It would consider in particular whether the existing regulatory requirements continue to be appropriate given these new risks, with a focus on the efficiency of safeguards such as best execution requirements and risk warnings provided to clients (e.g. as in the GameStop case).
The European Commission requests ESMA to deliver the report by 30 April 2022. In parallel to this call for advice, the European Commission has sent a call for advice to EIOPA.
ESMA Final Guidelines on the MiFID II/ MiFIR obligations on market data translations published
On 18 August 2021, ESMA published translations into all EU official languages of its Final Report on Guidelines on the MiFIDII/MiFIR obligations on market data. The Final Report sets out guidelines on the requirements to publish market data on a reasonable commercial basis and to make market data available free of charge 15 minutes after publication. The Guidelines apply to national competent authorities, trading venues, approved publication arrangements, consolidated tape providers and systematic internalisers.
The application date for the Guidelines is set on 1 January 2022 to allow for an adequate period of implementation by market participants. Following publication of translations, the regular comply or explain procedure will be carried out ahead of full application of the Guidelines.
Market Abuse Regulation
ESMA updates its Q&As
On 6 August 2021, ESMA updated its Q&As on MAR, adding three new Q&As regarding the disclosure of inside information: (i) the interaction between MAR and the CRA Regulation (ii) the disclosure of credit ratings to the public and inside information; and (iii) the distribution of subscription ratings and disclosure of inside information.
EMIR
ESMA announces an open hearing on EMIR reporting guidelines
On 3 September 2021 ESMA announced it will hold an open hearing on EMIR Reporting Guidelines on 20 September 2021. The hearing is part of ESMA’s consultation on draft Guidelines on a wide range of topics related to data quality, data access and reporting under EMIR Refit.
FUND REGULATION
Money Market Funds
Amending Delegated Regulation on requirements for assets received by MMFs as part of reverse repurchase agreements published in the Official Journal
On 23 August 2021, Commission Delegated Regulation (EU) 2021/1383 amending Delegated Regulation (EU) 2018/990 with regards to requirements for assets received by money market funds (MMFs) as part of reverse repurchase agreements was published in the Official Journal.
In accordance with Article 2 of Commission Delegated Regulation (EU) 2018/990 eligible investments in reverse repurchase agreements by managers of MMFs are subject to supplementary qualitative and quantitative requirements, including a specific adjustment to the value of an asset. However, those requirements do not apply to transactions entered into with credit institutions, investment firms and insurance undertakings that are established in the EU or that are covered by an equivalence decision.
The amending Regulation specifies the relevant provisions in the CRR, MiFID II and Solvency II on which equivalence decisions should be adopted for the exemption to be applied in relation to these entities. The new Delegated Regulation comes into force on 12 September 2021 (twenty days following its publication).
PRIIPS
European Commission call for advice to ESAs on PRIIPs Regulation
On 2 August 2021, ESMA published a call for advice from the European Commission (dated 27 July 2021), sent to the Joint Committee of the European Supervisory Authorities (ESAs), to request advice on the PRIIPs Regulation as part of the European Commission’s retail investments strategy.
The European Commission invites the ESAs to provide:
- a general survey on the use of the PRIIPs KID across the EU
- a general survey on the operation of the comprehension alert, taking into account any guidance developed by competent authorities
- a survey of the practical application of the rules laid down in the PRIIPs Regulation, taking due account of developments in the market for retail investment products
- an assessment of the effectiveness of the administrative sanctions, measures, and other enforcement actions for infringements of the PRIIPs Regulation
- an assessment of the extent to which the PRIIPs regulation is adapted to digital media
- an examination of questions concerning the scope of the PRIIPs Regulation including whether it should be extended to additional financial products.
The European Commission requests that the ESAs deliver the report by 30 April 2022.
UCITS
The European Commission consults on proposed Directive amending UCITS Directive regarding use of KID
On 5 August 2021, the European Commission issued for consultation on a proposal for a Directive amending the UCITS Directive as regards the use of key information documents (KID) by management companies of UCITS.
The date by which firms would be required to provide a KID was originally set as 31 December 2021, however the European Commission has separately proposed to extend the temporary exemption period from the requirement until 30 June 2022. With this extension, as of 1 July 2022 retail investors in UCITS would receive both a KID in accordance with the PRIIPs Regulation and key investor information in accordance with the UCITS Directive.
The European Commission explains in the proposal that it is desirable to avoid a situation where retail investors receive two different pre-contractual disclosure documents in respect of the same UCITS. This Directive proposal therefore inserts a new Article 82a in the UCITS Directive to ensure that a KID drawn up, provided, revised and translated for a given UCITS in accordance with the PRIIPs Regulation is considered as satisfying the key investor information requirements of the UCITS Directive.
The deadline for comments is 9 September 2021.
Alternative Investment Funds (AIFs) and UCITS
Official translations of ESMA guidelines on marketing communications of funds
On 2 August 2021, ESMA published the official translations of its guidelines for funds’ marketing communications under Article 4 of the Regulation on the cross-border distribution of collective investment undertakings.
The guidelines establish common principles on the identification of marketing communications, the description of risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and the fair, clear and not-misleading character of marketing communications, taking into account on-line aspects of such marketing communications.
However, the guidelines do not intend to replace existing national requirements on the information to be included in marketing communications (such as those relating to the fiscal treatment of the investment in the promoted fund) to the extent these are compatible with any existing harmonised EU rules (e.g. rules on disclosure of costs or performance in the KIID should not be contradicted or diminished by different national disclosure requirements on costs or performance in marketing communications).
The guidelines will apply from February 2022 (six months after the date of the publication of the translations).
SUSTAINABLE FINANCE
Integration of sustainability factors, risks and preferences
Delegated legislation integrating sustainability into AIFMD, IDD, MiFID II, Solvency II and UCITS Directive published in Official Journal
On 2 August 2021, four Delegated Regulations and a Delegated Directive were published in the Official Journal (the five legislative texts below can be accessed via the link to the Official Journal):
- Commission Delegated Regulation (EU) 2021/1253 amending Delegated Regulation (EU) 2017/565 (which supplements MiFID II) as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms
- Commission Delegated Regulation (EU) 2021/1255 amending Delegated Regulation (EU) 231/2013 (which supplements AIFMD) as regards the sustainability risks and sustainability factors to be taken into account by alternative investment fund managers
- Commission Delegated Regulation (EU) 2021/1256 amending Delegated Regulation (EU) 2015/35 (which supplements Solvency II) as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings
- Commission Delegated Regulation (EU) 2021/1257 amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 (which both supplement the Insurance Distribution Directive (IDD)) as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products; and
- Commission Delegated Directive (EU) 2021/1270 amending Directive 2010/43/EU (which supplements the UCITS Directive) as regards the sustainability risks and sustainability factors to be taken into account for UCITS.
The legislation enters into force on 22 August (20 days after publication in the Official Journal).
Delegated Regulations (EU) 2021/1253, (EU) 2021/1255, (EU) 2021/1256 and (EU) 2021/1257 will apply from 2 August 2022. Member States shall adopt and publish, by 31 July 2022, the measures necessary to comply with Commission Delegated Directive (EU) 2021/1270 and they shall apply those measures from 1 August 2022.
CySEC DEVELOPMENTS
Prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets
Through Circular C462 issued on 3 August 2021, CySEC informed Cyprus Investment Firms (CIFs) on the new prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets by amending the previous circular which was issued on the same matter, i.e. Circular C417. The new Circular provides for the calculation of own funds and capital adequacy ratio (Pillar I), the Internal Capital Adequacy Assessment Process (ICAAP) (Pillar II) and the Pillar III disclosures as regards the prudential treatment of crypto assets.
Guide on the implementation of the new prudential framework of Investment Firms (IFD/IFR), publication and testing submission of the new reporting forms under IFD/IFR
On 4 of August of 2021, Circular C464 was issued by CySEC, to inform CIFs and market participants regarding the updated practical guide with important information in regards to the implementation of the new prudential framework for investment firms (IFR/IFD) and the new reporting templates that CIFs need to submit to CySEC in regards to their new reporting prudential requirements under IFR/IFD.
In light of the above, CySEC announced a testing submission phase of the relevant forms, for all CIFs to familiarise themselves with the new prudential requirements and reporting templates before their first official submission, during the period between 04 October 2021 11 October 2021. Further, the Circular sets that the first official submission reporting reference date for Class 2 CIFs, under IFR/IFD, shall be for the period up to 30 September 2021 (due by 11 November 2021) and for Class 3 CIFs shall be for the period up to 31 December 2021 (due by 11 February 2022).
Revised EBA Guidelines on ML/TF risk factors
On 12 of August 2021, Circular C465 was issued by the CySEC, to inform the Regulated Entities of the revised EBA Guidelines on customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering (ML) and terrorist financing (TF) risk associated with individual business relationships and occasional transactions.
More information about the Guidelines, is available on our March 2021 Regulatory Roundup.