INVESTMENT SERVICES & CAPITAL MARKETS
MIFID /MIFIR
ESMA updates its guidance on product governance
On 27 March 2023, ESMA published its Final Report on Guidelines on MIFID II product governance guidelines.
The main amendments introduced to the guidelines concern:
- the specification of any sustainability-related objectives a product is compatible with;
- the practice of identifying a target market per cluster of products instead of per individual product (“clustering approach”);
- the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales;
- the periodic review of products, including the application of the proportionality principle.
The product governance requirements introduced by MIFID II have proven to be one key element of the MIFID II investor protection framework, aiming at ensuring that financial instruments and structured deposits (“products”) are manufactured and/or distributed when this is in the best interest of clients.
By pursuing the objective of ensuring a consistent and harmonised application of the product governance requirements, the guidelines will make sure that the objectives of MIFID II can be efficiently achieved.
The report summarises and analyses responses to the July 2022 consultation on the guidelines, explaining how the responses have been taken into account. The final guidelines are set out in Annex V. They will now be translated into the official EU languages and published on ESMA’s website. The publication of the translations will trigger a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply with the Guidelines. The Guidelines will apply two months after the date of the publication on ESMA’s website in all EU official languages.
ESMA statement on derivatives on fractions of shares
On 28 March 2023, ESMA published a public statement on derivatives on fractions of shares.
The active marketing and sale of so-called ‘fractional shares’ by firms to retail clients is a relatively new phenomenon that has gained momentum in the context of on-line trading platforms and neo-brokers.
‘Fractional shares’ allow investors to participate in the share performance of an issuer by way of an instrument that tracks the share price but is available at a smaller purchase price, namely the pro rata share price of the underlying share. ‘Fractional shares’ usually allow the investor to receive the economic benefits stemming from dividends, but normally do not carry voting rights.
The statement is addressed to firms and National Competent Authorities (NCAs), clarifying the application of certain investor protection requirements established under MIFID II.
The statement reminds firms that they are required to provide clients in good time, i.e. before the provision of investment services, with a description of the nature and risks of the relevant financial instruments.
The statement emphasises that: (i) all information to clients, including marketing information, shall be fair, clear, and not misleading; (ii) firms offering these derivatives must clearly disclose all direct and indirect costs and charges relating to them and the services provided; (iii) as derivatives are complex financial instruments, an appropriateness assessment needs to be carried out where non-advised services are provided; and (iv) where derivatives on fractions of shares are packaged retail and insurance-based investment products, the PRIIPs Regulation applies and firms need to provide retail clients with a PRIIPs KID.
ESMA provides guidance for supervision of copy trading services
On 30 March 2023, ESMA the EU’s financial markets regulator and supervisor, published a supervisory briefing on firms offering copy trading services, in accordance with its objective of fostering investor protection and actively promoting supervisory convergence across the Union. Copy trading, in general, allows investors to trade by automatically copying another investor’s trades. There can be different types of copy trading models and the terminology used for the provision of these types of services can therefore differ as well. The trading usually is automated, but it could also involve (partially) manual trading of the client’s assets.
This briefing includes guidance on the qualification of copy trading services as an investment service and it sets out supervisory expectations with regard to MIFID II requirements on:
- Information requirements (including on marketing communications and costs and charges)
- Product governance
- Suitability and appropriateness assessment
- Remuneration and inducement
- Qualifications of traders whose trades are being copied
The supervisory briefing sets out the supervisory expectations of both ESMA and National Competent Authorities (NCAs) and also includes indicative questions that supervisors could ask themselves, or firms, when assessing firms’ approaches to the application of the relevant MIFID II rules.
ESMA and NCAs will continue monitoring the development on this topic and may therefore undertake other steps in the future to assure that copy trading is provided in a manner that is consistent with the applicable MIFID II requirements and that investment services continue being provided in the best interest of the client.
ESMA updates MIFID II and MIFIR Q&As on transparency
On 31 March 2023, ESMA updated its Q&As on MIFID II and MIFIR transparency topics. ESMA added a new Q&A in relation to non-equity transparency that clarifies how to report the delivery/cash settlement location for electricity and gas contracts for cash settled contracts and contracts for which an Energy Identification Code (EIC) is not available, under Table 2 of Annex IV of RTS 2.
ESMA updates MIFIR Q&As on data reporting
On 31 March 2023, ESMA also added two new Q&As to its Q&As on MIFIR data reporting, clarifying: (i) what legal entity identifier (LEI) should be used to report in FIRDS the issuer of sovereign bonds issued by an EEA member state; and (ii) what ISO 3166-1 country code should trading venues and investment firms use to identify stateless natural persons for the purposes of transaction reports.
Official translations of ESMA guidelines on MIFID II remuneration and suitability requirements
On 3 April 2023, ESMA published the official translations of two sets of MIFID II guidelines:
- guidelines on certain aspects of the MIFID II remuneration requirements set out in Article 27 of the MIFID II Delegated Regulation as well as, on the one hand, the conflicts of interest requirements set out in Articles 16(3) and 23 of MIFID II and Article 34 of the MIFID II Delegated Regulation in the area of remuneration; and on the other hand, the conduct of business rules set out in Article 24(1) and (10) of MIFID II. In addition, the guidelines clarify the application of the governance requirements in the area of remuneration under Article 9(3) of MIFID II; and
- guidelines on certain aspects of the MIFID II suitability requirements in relation to Article 25(2) of MIFID II and of Articles 54 and 55 of the MIFID II Delegated Regulation.
Both sets of guidelines apply from 3 October 2023 (six months from the date of publication of the guidelines on ESMA’s website in all EU official languages).
Market Abuse Regulation
ESMA letter to European Parliament and Council of the EU highlights concerns with proposed changes to MAR insider list regime
On 20 March 2023, ESMA published a letter that has been sent to the European Parliament and the Council of the EU raising concerns about proposed changes to the MAR insider list regime.
Overall, ESMA welcomes the European Commission’s Listing Act proposal. The proposal amends Article 18 of Market Abuse Regulation (MAR), stipulating that an issuer’s insider list would no longer be event-based and would only need to include those persons that have regular access to inside information (so called “permanent insiders”). ESMA believes that this proposal may have significant detrimental effects, including: (i) the ability of NCAs to quickly identify non-permanent insiders would be limited; (ii) the ability of advisers and consultants to produce their insider list in a timely manner would be affected as they will no longer be added to the issuer’s list and therefore will not receive the relevant notification; and (iii) increasing the risk of unintended insider dealing and weakening the issuers’ control of the flow of inside information.
Issuers use insider lists to manage inside information thus protecting both themselves and their staff/third parties. The new regime would diminish awareness by all insiders, as they will no longer be notified that they are in possession of inside information and be informed about the relevant obligations and prohibitions.
EMIR
ESRB letter to European Parliament and Council of the EU on EMIR 3.0
On 20 March 2023, the European Systemic Risk Board (ESRB) sent a letter to the European Parliament and the Council of the EU about the EMIR review.
The ESRB sets out elements that it recommends incorporating into the EMIR review in order to make the financial system safer, including:
- active account – the ESRB identifies some gaps in the active account framework that could significantly impair its efficiency;
- data – the ESRB sets out several approaches that could make it possible to improve data quality, which it considers would make EU Central Counterparties (CCPs) more attractive and CCP supervision more robust;
- collateral – the energy market exemption was originally supposed to be time-limited. The ESRB is in favour of either ensuring that the current temporary extension does not turn into a permanent extension or applying on a permanent basis the same strict cumulative conditions regarding the acceptance of uncollateralised bank guarantees as those currently applied in the adjusted RTS;
- the non-objection procedure – the ESRB considers that the non-objection procedure should not be permitted where settlement in a new EU currency would be added to a class of financial instruments already covered by the CCP’s authorisation. In such cases, dedicated liquidity risk management and payment and settlement arrangements should be established, ensuring that these would not constitute non-material changes. In addition, in its current wording the proposal may lead to situations in which material extensions to the scope of services provided by EU CCPs, in particular in respect of the set of currencies in which the cleared transactions are denominated, could be implemented without a thorough risk assessment and without making the necessary adaptations to EU CCPs’ risk management frameworks; and (
- Joint Monitoring Mechanism (JMM) – clarification as to the interaction between the JMM and the existing supervisory framework would help reduce the additional administrative burden on both CCPs and the authorities.
The ESRB sets out its proposed amendments to the EMIR text in the Annex.
ESMA amendments to guidelines on position calculation under EMIR
On 28 March 2023, ESMA published a consultation on amendments to guidelines on position calculation under EMIR.
The guidelines have been amended to ensure that trade repositories (TRs) calculate positions in derivatives in a harmonised and consistent manner in accordance with Article 80(4) of EMIR and in line with the changes introduced by EMIR Refit technical standards.
The guidelines provide specific information on the aggregation of certain data fields and how those should be calculated by TRs prior to the provision of the data to relevant authorities. The aim is to ensure the consistency of position calculation across TRs, with regards to the time of calculations, the scope of the data to be used in calculations and the calculation methodologies under the new EMIR Refit standards. The amended guidelines will also address to what extent continuity should be ensured by TRs during the EMIR Refit transition period when pre- and post-Refit data will coexist.
The deadline for comments is 9 May 2023. ESMA expects to publish a final report on these amended guidelines during Q3 2023, to allow for at least a 6-month implementation period before the EMIR Refit goes live on 29 April 2024.
Central Securities Depositary Regulation (CSDR)
ESMA updates Q&As on CSDR
On 13 March 2023, ESMA published an updated version of its Q&As on the implementation of the regulation on improving securities settlement in the EU and on central securities depositories (CSDR).
ESMA has added new questions on settlement discipline, regarding partial settlement functionality.
Securities Financing Transactions Regulation (SFTR)
ESMA updates Q&As on SFTR data reporting
On 31 March 2023, ESMA updated its Q&As on the SFTR reporting requirements.
ESMA has added a new Q&A to provide clarification on reporting of the jurisdiction of the issuer.
ICMA updates public version of its SFTR reporting recommendations
On 5 April 2023, the International Capital Market Association (ICMA) released the ninth update to its detailed Recommendations for Reporting under SFTR. The updated version incorporates a few changes based on the recent updates made to ESMA’s validation rules on 8 March 2023, as well as the ongoing discussions within the European Repo and Collateral Council’s (ERCC) SFTR Task Force. (The ERCC was established by the ICMA in 1999, to represent the cross-border repo and collateral markets in Europe)
Credit Rating Agencies Regulation
ESMA fines S&P €1.11 million for failures related to the premature release of credit ratings to the public
ESMA fined S&P Global Ratings Europe Limited (S&P) a total of EUR 1,110,000, and on 22 March 2023, issued a public notice for breaches of the Credit Rating Agencies Regulation (CRA Regulation).
ESMA found that S&P published credit ratings before the concerned securities were issued by the rated entities and announced to the market. This was due to internal control failures and led to breaches by S&P of its transparency obligations.
The breaches covered by the fine specifically relate to:
- deficiencies in S&P’s internal control mechanisms, which did not ensure compliance with its obligations regarding the timely disclosure of credit ratings;
- the failure by S&P to disclose on a non-selective basis and in a timely manner decisions to discontinue credit ratings;
- the failure by S&P to submit up-to-date rating information to ESMA.
All breaches were found to have resulted from negligence on the part of S&P. In calculating the fine, ESMA considered both aggravating and mitigating factors provided for in the CRA Regulation.
Corporate Reporting
ESMA 2022 Corporate Reporting Enforcement and Regulatory Activities Report
On 29 March 2023, ESMA published its 2022 Corporate Reporting Enforcement and Regulatory Activities Report, providing an overview of activities carried out by ESMA and enforcers on financial and non-financial information and European Single Electronic Format (ESEF) reporting. ESMA assessed how issuers comply with International Financial Reporting Standards (IFRS), ESMA’s Guidelines on Alternative Performance Measures (APMs), non-financial reporting obligations and ESEF reporting requirements and adhere to ESMA’s recommendations.
RECOVERY AND RESOLUTION
Credit Suisse
SRB, EBA and ECB Banking Supervision statement on the announcement on 19 March 2023 by Swiss authorities
On 20 March 2023, the Single Resolution Board, the European Banking Authority and ECB Banking Supervision published a statement confirming that the resolution framework implementing in the European Union the reforms recommended by the Financial Stability Board after the Great Financial Crisis has established, among others, the order according to which shareholders and creditors of a troubled bank should bear losses.
In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions.
Additional Tier 1 is and will remain an important component of the capital structure of European banks.
FINANCIAL CRIME
Council adopts negotiating mandate on EU law on criminal finances
On 29 March 2023, the Council of the EU agreed its negotiating mandate for a proposed EU law to ease the access of national authorities to financial information.
Access to financial information is an important instrument in financial investigations and in efforts to trace and confiscate the proceeds of crime.
In their fight against money laundering, EU countries will soon have to make information from centralised bank account registers available through a single access point. The centralised bank account registers contain data on who has which bank account and where. The proposed law would ensure that national authorities dealing with criminal offences would also have access to these registers through this single access point.
The Council proposes going beyond the terms of the Commission’s draft and requiring that financial institutions share transaction records (i.e. bank statements) in a harmonised format when they are sharing them as part of an investigation.
EBA draft amendments to risk-based supervision guidelines
On 29 March 2023, the European Banking Authority (EBA) launched a public consultation on amendments to its Guidelines on risk-based anti-money laundering and countering the financing of terrorism (AML/CFT) supervision. The proposed changes extend the scope of these Guidelines to AML/CFT supervisors of crypto-asset service providers (CASPs).
By its nature, the provision of crypto-asset services is a cross-border activity. That is why it is important that the same standards apply wherever CASPs operate in the single market. To achieve this, the EBA is proposing to amend its Guidelines on Risk-Based AML/CFT Supervision to clarify how they apply to AML/CFT supervisors of CASPs.
The amendments include guidance on the sources of information competent authorities should consider when assessing ML/TF risks associated with CASPs. They also highlight the importance of a consistent approach to setting supervisory expectations where multiple competent authorities are responsible for the supervision of the same institutions and stress the importance of training to ensure that staff from competent authorities have the technical skills and expertise necessary for the execution of their functions.
Specific AML/CFT guidance for CASPs will be delivered through the forthcoming amendments to the EBA’s Risk Factors Guidelines, the amendments to the Guidelines to prevent the abuse of fund transfers for ML/TF purposes, and new Guidelines on policies and procedures for compliance with restrictive measures.
The deadline for the submission of comments is 29 June 2023.
EBA Guidelines to challenge unwarranted de-risking and safeguard access to financial services to vulnerable customers
On 31 March 2023, The European Banking Authority (EBA) published new Guidelines to ensure that customers have access to the financial services they need to fully participate in society and that they are not denied this access on unsubstantiated Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) grounds or without valid reason.
These Guidelines will contribute to foster a common understanding by institutions and AML/CFT supervisors of effective money laundering and terrorist financing (ML/TF) risk management practices in situations where access by customers to financial products and services should be safeguarded, in particular for the most vulnerable ones.
The EBA’s assessment of the scale and impact of de-risking highlighted that while decisions not to establish or to end a business relationship, or not to carry out a transaction, may be in line with the EU AML/CFT framework, de-risking of entire categories of customers, without due consideration of individual customers’ risk profiles, can be unwarranted and a sign of ineffective ML/TF risk management. To clarify regulatory expectations, and tackle unwarranted de-risking, the EBA has issued two new sets of Guidelines.
The first set is an Annex to the EBA ML/TF risk factors Guidelines, which set out what financial institutions should do to identify and assess ML/TF risk associated with customers who are Not-for-Profit organisations (NPOs). The guidance contained in the Annex will help financial institutions understand better how NPOs are organised, how they operate in practice, and what ML/TF risk factors are particularly relevant when dealing with such customers. This is to support them in managing ML/TF risks associated with NPOs effectively, instead of denying them access to financial services.
The second set of Guidelines is broader and tackles the issue of effective management of ML/TF risks by financial institutions when providing access to financial services. These Guidelines clarify the interaction between the access to financial services and institutions’ AML/CFT obligations, including in situations where customers have legitimate reasons to be unable to satisfy Customer Due Diligence (CDD) requirements. They make clear that before making a decision to reject a customer, several options need to be considered. In addition, they set out the steps institutions should take when considering whether to refuse or terminate a business relationship with a customer based on ML/TF risk or AML/CFT compliance grounds.
The amended guidelines and the new set of guidelines will apply three months after publication in all EU official languages.
FUND REGULATION
AIFs and UCITS
Updated ESMA Q&As on AIFMD
On 10 March 2023, ESMA published updated version of its Q&A document on the application of the AIFMD.
ESMA added a new section XVI on exemptions, containing a new question on how the notion of “substantive direct or indirect holding” in Article 3(2) of the AIFMD should be interpreted.
ESMA speech on macro-prudential supervision of investment funds
On 21 March 2023, ESMA published a speech by Verena Ross, ESMA Chair, on the macro-prudential supervision of investment funds.
Points of interest include:
- Ms Ross cautions that the risks faced by liability-driven investment funds (LDIs) are not specific or unique to them – any leveraged entity with concentrated directional exposures could be subject to similar stress, especially if large shocks materialise very quickly. An exogeneous event can trigger simultaneous peripheral events, which may become correlated and therefore systemic.It is crucial to identify, monitor and address the remaining vulnerabilities in the asset management sector, and identify the possible channels of contagion to the rest of the financial system.
- Ms Ross considers that open-ended funds need particular attention regarding liquidity and leverage risk. On one side asset managers need to prepare for further and prolonged adverse events. On the other side supervisors need to step up their efforts in assessing risks and to take adequate actions in response to the risks identified.ESMA expects managers to monitor the alignment of their funds’ investment strategy, their liquidity profile and their redemption policy. In addition, managers should put in place accurate assessment and strong controls around the management of liquidity risk. These obligations should also be regularly monitored through the ongoing supervision by NCAs. Ms Ross believes that regulators could consider running formal sector-wide stress tests to identify pockets of vulnerabilities; and
- Ms Ross states that the vulnerabilities that surfaced during the pandemic, have demonstrated that legislative changes to enhance the resilience of the money market fund sector are needed sooner rather than later. ESMA also welcomes the review of the UCITS Directive, which foresees the creation of an EU-wide reporting regime for UCITS.
Comparison table of negotiating positions on Directive amending the AIFMD and the UCITS Directive
On 28 March 2023, the Council of the EU published an information note on the proposal for a Directive amending the AIFMD (Directive 2011/61/EU) and the UCITS Directive (Directive 2009/65/EC) as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds.
The information note includes a table comparing the initial position of the Commission, and the negotiating positions of the Council and the European Parliament.
European Long-Term Investment Funds (ELTIFs)
ELTIF Regulation 2.0 published in Official Journal
On 20 March 2023, the Regulation amending the European long-term investment funds (ELTIF) Regulation as regards the requirements pertaining to the investment policies and operating conditions of ELTIFs and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules, was published in the Official Journal.
The amendments are intended to increase the uptake of long-term investment vehicles and make them more appealing to investors. The key changes include: (i) differentiating between ELTIFs marketed to professional investors and those to which retail investors can have access; (ii) removing barriers to retail investor access to ELTIFs; and (iii) establishing an optional liquidity window mechanism for redemptions, for cases where investors need to exit early.
The Amending Regulation enters into force on 9 April 2023 (20 days after publication in the Official Journal) and it will apply across the EU from 10 January 2024.
PRIIPs
Corrigendum to PRIIPs Delegated Regulation (EU) 2021/2268
On 16 March 2023, a corrigendum to Delegated Regulation (EU) 2021/2268 amending the RTS laid down in the PRIIPs KID Delegated Regulation (2017/653), was published in the Official Journal.
The corrigendum amends the calculation for VaR (value at risk)-equivalent volatility in the market risk measure class determination for Category 2 and 3 PRIIPs in Annex II on methodology for the presentation of risk.
SUSTAINABLE FINANCE
European Central Bank
Joint statement on disclosure on climate change for structured finance products
On 13 March 2023, the European Supervisory Authorities (ESAs) and ECB published a joint statement on disclosure on climate change for structured finance products.
The statement explains that the ESAs and the ECB are committed to contributing to the transition towards a more sustainable economy with their respective mandates. With the increasing focus on financial products meeting ESG standards within the EU, it has also become a priority for structured finance products to disclose climate-related information on the underlying assets. As such, ESMA, with the contribution of the ESAs, is working towards enhancing disclosure standards for securitised assets by including new, proportionate and targeted climate change-related information.
The ESAs and the ECB are also calling on issuers, sponsors and originators of such assets at EU level to proactively collect high-quality and comprehensive information on climate-related risks during the origination process.
European Central Bank speech on 2023 as a key milestone in stepping up the management of climate and environmental risks
On 27 March 2023, the ECB published a speech given by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, on 2023 being a key milestone in stepping up the management of climate and environmental (C&E) risks.
Mr Elderson explains that the results are mixed, as to where banks stand in integrating Climate-related and environmental (C&E) financial risks into their strategy and risk management. While banks have made some progress, Mr Elderson emphasised that overall risk management capabilities are still insufficient, adding there is still a material gap between where banks currently stand and the ECB’s supervisory expectations.
Three examples of practices banks need to improve on are: (i) stress testing; (ii) identification of C&E risks; and (iii) broader environmental risks.
By the end of 2024, the ECB expects all banks under its supervision to be fully aligned with its expectations, stating that after 2024, a limbo of identifying a risk as material but not adequately addressing it will no longer be tolerated.
The ECB will be closely monitoring banks’ progress, and, if necessary, will use all measures in its toolkit to ensure compliance with its expectations, including imposing periodic penalty payments and setting Pillar 2 capital requirements as part of the annual Supervisory Review and Evaluation Process.
CySEC DEVELOPMENTS
CySEC announcement for de-registration and re-registration from the Certification Registers
On 1 March 2023, CySEC issued an announcement regarding the de-registration and re-registration of Certified Persons from and to the Certification Registers.
Any persons who failed to renew their registration by 28 February 2023 have been automatically de-registered. CySEC details that Persons who have been de-registered from the Certification Registers due to failure to renew their registration, can submit a request for re-registration within twelve (12) months from the renewal deadline. The twelve-month period ends on 29th of February 2024. Re-registration will not be possible after the expiration of the twelve-month period.
Circular C551: EU Council’s Restrictive Measures against Russia due to its military aggression against Ukraine – Tenth Sanctions Package
On 6 March 2023, CySEC issued Circular C551, where it draws the attention of Regulated Entities to the Tenth Sanctions Package adopted by the EU Council against Russia due to its military aggression against Ukraine. CySEC wishes to draw the attention of the Regulated Entities to the new reporting obligations, following the amendments of Article 8 of Council Regulation (EU) No. 269/2014 and Article 5a of Council Regulation (EU) No. 833/2014, as published in the Official Journal of the European Union, dated 25 February 2023.
In summary, the amended Article 8 of Council Regulation (EU) No. 269/2014 is introducing more detailed reporting obligations on funds and economic resources belonging to listed individuals and entities which have been frozen or were subject to any move shortly before the listing, while specifying when and how the information on funds and economic resources frozen should be reported to the competent authorities. The amended Article 5a of Council Regulation (EU) No. 833/2014 is also introducing new reporting obligations to the Member States on immobilized reserves and assets of the Central Bank of Russia.
Therefore, considering the new and continuous reporting obligations, as stated above, all the Regulated Entities that are affected by the amendments of Article 8 of Council Regulation (EU) No. 269/2014 and Article 5a of Council Regulation (EU) No. 833/2014 are expected to inform CySEC, within the set timeframes (as these are stated in the abovementioned articles) and according to the set manner, by using the email address EU.sanctions@cysec.gov.cy.
Finally, CySEC wishes to remind the Regulated Entities to continuously monitor the Section entitled “Sanctions/Restrictive Measures” on CySEC’s website and the EU Council’s website for guidance on the implementation of EU Council’s Restrictive Measures, including the relevant Consolidated FAQs and the Consolidated List of Sanctions, which are continuously updated. It is also noted that the European Commission has issued relevant Q&As for the Tenth Sanctions Package.
Policy Statement on the Application of Regulation (EU) 2020/1503 on European Crowdfunding Service Providers for Business (PS-01-2023) and CySEC Directive DI73-2009-02
On 6 March 2023, CySEC published on its website CySEC Directive DI73-2009-02, which is directed to Crowdfunding Service Providers (CSPs). Following this publication, CySEC issued CySEC Policy Statement on the Application of Regulation (EU) 2020/1503 on European Crowdfunding Service Providers for Business (PS-01-2023). CySEC stated in a Press Release on 13 March 2023 that these two publications serve the following purposes:
- Outline CySEC’s position as regards the discretions provided to the National Competent Authorities that are entrusted with the supervision of CSPs, under Regulation (EU) 2020/1503;
- Inform market participants that CySEC will commence accepting applications from prospective CSPs;
- Specify the information to be notified to CySEC on an ongoing basis as well as the cases where an assessment will be undertaken by CySEC and the scope thereof; and
- Outline the respective fees and charges applicable to CSPs.
Regulation (EU) 2020/1503 lays down uniform rules across the EU for the provision of Crowdfunding Services which will enable CSPs to obtain an EU passport in accordance with a harmonised and enhanced investor protection framework.
Circular C552: ESMA Public Statement ‘European common enforcement priorities for 2022 annual financial reports’ (available only in Greek)
On 13 March 2023, CySEC issued Circular C552 (available only in Greek), which is directed towards issuers with securities listed for trading in a regulated market (the Issuers). Via C552, CySEC draws the attention of Issuers to ESMA’s Public Statement on the topic of ‘European Common Enforcement priorities for 2022 annual financial reports.’
ESMA’s Public Statement presents the common European priorities established by ESMA, together with the National Supervisory Authorities, in relation to supervision of the annual financial reports of the Issuers for the year 2022. ESMA, together with the National Supervisory Authorities, will pay special attention to the issues that are included in said priorities during its monitoring and evaluation application of information requirements. The priorities are detailed within the Circular, and include topics associated with climate, the Russian invasion of Ukraine, macroeconomic environment, notices in relation to taxonomy, and reference scope and data quality.
CySEC invites Issuers with securities listed for trading on a regulated market, to take due account of the issues and detailed recommendations that are referred to in the said Public Statement of ESMA, during the preparation of the annual financial reports for the year 2022.
CySEC will include the priorities and issues mentioned above in areas to focus on when evaluating the annual financial statements of the Issuers for the year 2022 in relation to their compliance with IFRS and the annual financial reporting to comply with the various legal requirements.
Circular C553: Guidelines on certain aspects of the compliance function requirements
On 14 March 2023, CySEC issued Circular C553, by which it provides guidance on the application of certain aspects of the compliance function requirements provided in article 17(2) of the Investment Services and Activities and Regulated Markets Law (Law 87(I)/2017) and Article 22 of the MiFID II Delegated Regulation 2017/565, in order to ensure the common, uniform and consistent application of these legal requirements.
In summary, C553 provides guidance on the responsibilities of the compliance function (including compliance risk assessment, monitoring, reporting, advisory and assistance obligations), the organisational requirements of the compliance function (including skills, knowledge, expertise and authority, proportionality, independence and outsourcing), and the review of the compliance function by the competent authority.
CySEC details that C553 should be read along with CySEC Circular C447. Circulars C030 and C050 are now repealed and replaced by C553.
Circular C555 (re-issue of Circular C551): Restrictive Measures and other sanctions against Russia due to its military aggression against Ukraine – Tenth Sanctions Package
On 22 March 2023, CySEC issued Circular C555 in place of Circular C551. The Circular’s content is the same with Circular C551, with the only difference being the deadline to provide CySEC with the relevant information, which is now extended to no later than two weeks after 27 April 2023 (was 26 February 2023 previously).
Information should be submitted to CySEC to the email address EU.sanctions@cysec.gov.cy and shall be updated every three months.
Circular C554: Suspension of redemption of UCITS and AIF units on 7 and 10 April 2023
On 23 March 2023, CySEC issued Circular C554, where it informed Regulated Entities that the redemption of UCITS and AIF units is suspended on 7 and 10 April 2023. CySEC notes that this suspension refers to UCITS and AIFs that hold assets in transferable securities listed in regulated markets and whose net asset value is calculated on a daily basis. Within C554, CySEC details its reasons for suspension on these two days, and also highlights that the obligations under article 20(2) of the UCI Law and article 43 of the AIF Law continue to apply.
Circular C556: Guidance on Sanctions and Restrictive Measures
On 27 March 2023, CySEC issued Circular C556, where it notifies the Regulated Entities for the issuance of a Practical Guide for Guidance on Sanctions and Restrictive Measures, which is now available on CySEC’s website.
The said Guide was prepared to provide guidance to the Regulated Entities, serve as a single-source information document on the legal framework of Sanctions and Restrictive Measures, and promote awareness and understanding of the various obligations emanating from the framework, as well as the risks of non-compliance.
CySEC notes that that the Practical Guide may be updated from time to time.
Circular C558: Directive DI 111-01 of the Cyprus Securities and Exchange Commission for the identification of material transactions with related parties of 2023 (available in Greek)
On 31 March 2023, CySEC issued Circular C558 (available in Greek) which is directed towards Issuers with securities listed for trading in a regulated market (the Issuers). Via C558, CySEC informs the Issuers of the Directive DI 111-01 of the Cyprus Securities and Exchange Commission for the identification of material transactions with related parties of 2023 (the Directive) which was published in the Official Government Gazette of the Republic of Cyprus on 17 March 2023, in accordance with Article 14 of the Encouragement of Long-Term Shareholder Engagement Law of 2021 (the Law).
In accordance with the Law, ‘Related Party’ has its meaning assigned by the International Accounting Standards that have been adopted in accordance with the European Council and Parliament’s Regulation 1606/2002 of 19 July 2002 for the application of International Accounting Standards (IAS). The IAS concerned with related party disclosures is IAS 24 (IAS24 – Related Party Disclosures).
According to article 14(3) of the Law, Issuers are obliged to announce publicly the material transactions with related parties, the latest during the year the transaction was completed. In addition, according to Article 14(5) of the Law, significant transactions with related parties must be approved by the general meeting or by the administrative or supervisory body of the Issuer.
CySEC calls upon Issuers to review the provisions of the Law concerning transactions with related parties (Article 14) and ensure their implementation.
Circular C561: Updated version of the ESMA Guidelines on stress test scenarios under the MMF Regulation
On 31 March 2023, CySEC issued Circular C561, which reminds the Regulated Entities that ESMA issued, on 27 January 2023, an updated version of its Guidelines on stress test scenarios under the MMF Regulation (the Guidelines) in the official translations of all EU official languages. CySEC notes that C561 replaces the previous Circular (C521) on the same topic, issued on 1 July 2022.
These Guidelines apply to: National Competent Authorities, Money Market Funds, and Managers of Money Market Funds as defined in the MMF Regulation. The Guidelines apply in relation to Article 28 of the MMF Regulation and establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs in accordance with that article.
CySEC notes that the Guidelines applied from 27 March 2023 (i.e. two months from the date of publication of the guidelines on ESMA’s website in all EU official languages) with respect to the parts in the Guidelines shown in red – the other parts of the Guidelines already apply from the dates specified in Articles 44 and 47 of the MMF Regulation.
CySEC urges the Regulated Entities to whom these Guidelines apply, to make every effort to comply.