INVESTMENT SERVICES & CAPITAL MARKETS
MIFID and MIFIR
ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has on March 1, 2024, published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from 1 April 2024.
The calculations made available include:
- the liquidity assessment as per Articles 1 to 5 of CDR 2017/567;
- the determination of the most relevant market in terms of liquidity as per Article 4 of CDR 2017/587 (RTS 1);
- the determination of the average daily turnover relevant for the determination of the pre-trade and post-trade large in scale thresholds;
- the determination of the average value of the transactions and the related the standard market size; and
- the determination of the average daily number of transactions on the most relevant market in terms of liquidity relevant for the determination of the tick-size regime.
Currently, there are 1,193 liquid shares and 914 liquid equity-like instruments other than shares, subject to MiFID II/MiFIR transparency requirements.
Market participants are invited to monitor the release of the transparency calculations for equity and equity-like instruments on a daily basis to obtain the estimated calculations for newly traded instruments and the four-weeks calculations applicable to newly traded instruments after the first six weeks of trading.
ESMA’s annual transparency calculations are based on the data provided to Financial Instruments Transparency System (FITRS) by trading venues and approved publication arrangements in relation to the calendar year 2023.
The full list of assessed equity and equity-like instruments will be available through the FITRS in the XML files with the publication date from 1 March 2024 and through the Register web interface.
The transparency requirements based on the results of the annual transparency calculations published from 1 March 2024 for equity and equity-like instruments will apply from 1 April 2024 until 6 April 2025. From 7 April 2025 the next annual transparency calculations for equity and equity-like instruments, to be published by 1 March 2025, will become applicable.
Directive and Regulation improving MIFID II market data access and transparency published in the Official Journal
On 8 March 2024, Directive (EU) 2024/790 amending MIFID II Directive and Regulation (EU) 2024/791 amending MIFIR as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising trading obligations and prohibiting receiving payment for order flow were published in the Official Journal.
Key changes made include:
- the establishment of consolidated tapes to provide investors with up-to-date transaction information for the whole EU;
- the imposition of a general ban on ‘payment for order flow’, a practice through which brokers receive payments for forwarding client orders to certain trading platforms. Member States in which the practice already existed may allow investment firms under its jurisdiction to be exempt from the ban, provided that the practice only happens in the context of services to clients in that Member State, but the practice must be phased out by 30 June 2026; and
- the introduction of new rules on commodity derivatives.
The texts will enter into force on 28 March 2024. The Regulation will apply immediately in all Member States. However, Member States will have until 29 September 2025 to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive.
ESMA updates Q&A on Product Governance
ESMA issued a new Q&A on March 11, 2024, in relation to whether ‘When conducting the negative target market assessment for a product that does not consider sustainability factors, should a firm also consider any clients’ sustainability-related objectives the product is not compatible with’?
T+1 feedback report shows mixed impacts of shortening the settlement cycle in the EU
On 21 March 2024, ESMA published feedback received to its Call for Evidence on shortening the settlement cycle.
In the report ESMA summarises the feedback from market participants during the consultation, focused on four areas:
- Many operational impacts beyond adaptations of post-trade processes are identified as resulting from a reduction of the securities settlement cycle in the EU.
- Respondents identified a wide range of both potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment before deciding.
- Respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry.
- Stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Some responses warned about potential infringements due to the misalignment of the EU and North America settlement cycles, that ESMA is currently assessing.
ESMA will continue assessing the responses received, including the demands for regulatory/supervisory guidance. ESMA aims at including lessons learnt from the North American move to T+1 as well as any further feedback received from stakeholders in the APAC region, from small and medium market participants and retail investors and their representatives.
ESMA intends to deliver its final assessment to the European Parliament and to the Council before 17 January 2025.
European Commission draft interpretative notice on the transitional provision of the MIFIR review
On 27 March 2024, the European Commission published a communication on a draft interpretative notice to provide clarity to market participants on the transitional provision of the MIFIR review.
The European Commission explains that several provisions in the MIFIR review need to be supplemented by European Commission delegated regulations to become fully operational. To ensure legal certainty for market participants on the regime applicable until these new European Commission delegated regulations enter into application, it is necessary to clarify the interpretation and implementation of the transitional provision laid down in Article 54(3) of MIFIR as amended by Article 1(47)(b) of the MIFIR review.
The draft European Commission notice clarifies that, pursuant to Article 54(3) of MIFIR, the existing European Commission delegated regulations, as applicable before 28 March 2024, continue to apply, together with the provisions that they supplement, in all cases where the MIFIR provisions are to be supplemented by new or amended European Commission delegated regulations to become fully operational and cannot be supplemented adequately by the existing European Commission delegated regulations only. This means, for example, that the current double volume cap will remain in place until the new European Commission delegated regulations covering the single volume cap enter into application.
The text of the draft notice can be found in the Annex to the communication.
Subject to formal European Commission approval, the notice will be published at a later date in the Official Journal.
ESMA Public Statement on the transition for the application of the MIFID II / MIFIR review
On 27 March 2024, ESMA published a statement including practical guidance supporting the transition and the consistent application of MiFID II and MiFIR in light of the changes introduced to them by Regulation 2024/791 (MiFIR review) and Directive 2024/790 (MiFID II review).
This statement complements the European Commission’s interpretative draft notice on the transitional provision of the MIFIR review and aims at providing practical guidance on some key areas in order to contribute to the orderly transition and consistent application of MIFIR as amended by the MIFIR review.
Notably, this statement provides further guidance on the new rules that need to be supplemented by delegated regulations and those rules that are “self-executing” and do not need to be supplemented by delegated regulations to be effective. This statement covers the following areas: (i) volume cap (double/single); (ii) equity transparency; (iii) non-equity transparency; (iv) the SIs regime; (v) designated publishing entities (DPEs); and (vi) reporting.
ESMA may issue further and more detailed guidance on the topics covered in the statement at a later stage, if needed. It is planning to establish a dedicated webspace tracking the development of draft European Commission delegated regulations and clarifying which provisions are applicable to market participants at a given time.
Credit Rating Agencies
ESMA fines Scope EUR 2,197,500 for breaches of conflict of interest obligations
On 22 March 2024, fined Scope Ratings GmbH (Scope) a total of EUR 2,197,500, and issued a public notice, for breaches of the Credit Rating Agencies Regulation (CRA Regulation).
ESMA found that Scope fell short of the CRA Regulation’s requirements on handling conflicts of interest. This finding resulted from structural failures and specific breaches of the conflict of interest obligations in the CRA Regulation.
The five breaches covered by the fine specifically relate to:
- structural shortcomings in Scope’s policies and procedures, internal control mechanisms and organisational and administrative arrangements;
- two further specific breaches related to Scope’s failure linked to a potential conflict of interest regarding one particular individual; and to disclose in the final rating report the provision of ancillary services to a rated entity.
All breaches were found to have resulted from negligence on the part of Scope. In calculating the fine, ESMA considered both aggravating and mitigating factors provided for in the CRA Regulation.
DIGITAL OPERATIONAL RESILIENCE
Digital Operational Resilience Act (Dora)
European Commission adopts RTS on classification of ICT-related incidents, contractual arrangements policy and risk management tools under DORA
On 13 March 2024, the European Commission adopted three Regulatory Technical Standards (RTS) on:
- criteria for the classification of information and communication technology (ICT) related incidents and cyber threats, setting out materiality thresholds and specifying the details of reports of major incidents;
- detailed content of the policy regarding contractual arrangements on the use of ICT services supporting critical or important functions provided by ICT third-party service providers; and
- ICT risk management tools, methods, processes, and policies and the simplified ICT risk management framework.
The Council of the EU and the European Parliament will now scrutinise the texts. If neither object, they will be published in the Official Journal and enter into force on the twentieth day following their publication.
FINANCIAL CRIME
Anti-money laundering
European Commission publishes report on implementation of the Fourth Money Laundering Directive (MLD4)
On 11 March 2024, the European Commission published a report to the European Parliament and the Council on the implementation of MLD4.
The report is based on information gathered from various sources and considers information as of 15 September 2023. The European Commission also published a staff working document, which includes summaries of the results of the surveys and contributions used in the production of the report. The report covers the following: (i) the transposition of MLD4 and MLD5; (ii) risk assessment and risk mitigation; (iii) National Competent Authorities (NCAs) and financial intelligence units, information access and co-operation, including at international level; (iv) beneficial ownership information regarding non-EU entities; (v) Politically exposed persons (PEPs) and enhanced due diligence measures; and (vi) fundamental rights.
The report notes the European Commission’s reaction to the level of change to the risk environment in recent years and the EBA’s contribution to harmonisation and supervisory convergence, including substantial improvements regarding information exchange and co-operation between anti-money laundering (AML) and combatting the financing of terrorism (CTF) supervisors in the financial sector.
European Commission seeks EBA technical advice on RTS and guidelines under the future AML/CFT framework
On 12 March 2024, the EBA published a provisional request for advice from the European Commission regarding RTS and guidelines under the future AML/CFT framework.
The request is provisional as the new AML/CFT framework has not yet entered into force and refers to the text of those mandates as included in the compromise text endorsed by the co-legislators in January 2024.
The request for advice concerns standards and guidelines that Anti-Money Laundering Authority (AMLA) will have to develop, and includes the following matters: (i) the methodology for classifying the risk profile of cross-border credit or financial institutions that may be selected for supervision at Union level; (ii) risk-based supervision; (iii) information necessary for the performance of customer due diligence; (iv) the criteria for determining pecuniary sanctions or administrative measures; (v) the minimum requirements of group-wide policies; and (vi) guidelines on the base amounts of such pecuniary sanctions.
The deadline for the EBA to deliver the technical advice is 31 October 2025.
European Commission adopts delegated regulation amending list of high-risk third countries under the Fourth Money Laundering Directive (MLD4)
On 14 March 2024, the European Commission adopted a delegated regulation updating the list of third-country jurisdictions that have been identified as having strategic deficiencies in their AML and CTF regimes, that pose significant threats to the EU financial system, by amending Delegated Regulation (EU) 2016/1675.
The delegated regulation removes Barbados, Gibraltar, Panama, Uganda and the United Arab Emirates from the list and adds Kenya and Namibia to the table in point I of the Annex. These amendments reflect the amendments FATF made in February to its list of ‘Jurisdictions under Increased Monitoring’.
The Delegated Regulation will now be submitted to the Council of the EU and the European Parliament for review. If there are no objections, it will enter into force on the twentieth day following its publication in the Official Journal.
Council of EU final compromise text on proposed Directive on cross-border law enforcement access to bank account registries
On 27 March 2024, the Council of the EU published an ‘I’ item note (dated 22 March) on the proposal for a Directive amending Directive (EU) 2019/1153 as regards access of competent authorities to centralised bank account registries through the single access point.
The note explains that while the objective of the initial European Commission was to extend the access to the bank account registers (BAR) single access point to the designated authorities competent for the prevention, detection, investigation or prosecution of criminal offences, the co-legislators added new elements during the negotiations, namely the harmonisation of bank statement formats, invitation to Europol to support Financial Investigation Units to carry out joint analysis and extension of the definition of bank account information.
The transposition period of the proposed Directive reflects only the initial scope of the proposal limited to the access to the BAR through the single access point and did not consider the new elements added by the co-legislators. As the proposed Directive is part of the AML package, the new harmonisation of bank statement format and extension of definition of bank account information were further elaborated in the revised AML Directive and Regulation. Therefore, to align the transposition periods with those in the AML Directive and Regulation, the Council of the EU suggests that the transposition periods should be five years solely for the provisions related to the access to the BAR single access point, and a transposition period of three years for all the other provisions.
REPORTING
European Parliament adopts proposed Regulation to streamline reporting obligations and reduce the administrative burden for the European Union’s financial sector
On 13 March 2024, the European Parliament announced that it had adopted at first reading the proposed regulation amending the ESRB Regulation, EBA Regulation, EIOPA Regulation, ESMA Regulation and InvestEU Regulation as regards certain reporting requirements in the fields of financial services and investment support.
The proposed regulation aims to:
- facilitate the sharing of reported data between national and EU authorities where both authorities already have the right to collect the data, to avoid duplicative requests and to facilitate the sharing of clean or processed versions of such data;
- require authorities to regularly review reporting requirements, remove any redundant or obsolete ones, and minimise the reporting burden; and
- allow, under strict confidentiality and data protection conditions, the sharing of data held by authorities with financial institutions, researchers, and other entities, for research and innovation purposes.
The file will be followed up by the European Parliament after the European elections in June 2024. The Council of the EU will then need to adopt the regulation. It will enter into force on the twentieth day following its publication in the Official Journal.
MARKETS IN CRYPTO-ASSETS REGULATION (MiCA)
ESMA launches the third consultation under MiCA
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, on March 25, 2024, published its third consultation package under the Markets in Crypto-Assets Regulation (MiCA).
In the consultation package, ESMA is seeking input on four sets of proposed rules and guidelines, covering:
- Detection and reporting of suspected market abuse in crypto-assets (RTS).
- Policies and procedures, including the rights of clients, for crypto-asset transfer services (Guidelines).
- Suitability requirements for certain crypto-asset services and format of the periodic statement for portfolio management (Guidelines).
- ICT operational resilience for certain entities under MiCA (Guidelines).
Stakeholders are encouraged to provide their feedback to the consultation by 25 June 2024 using this response form. ESMA will publish a final report based on the feedback received and will submit the draft technical standards to the European Commission for endorsement by 30 December 2024 at the latest.
More information about the timeline for MiCA implementing measures and the transitional period can be found here.
ESMA finalises first rules on crypto-asset service providers
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, on March 25, 2024, published the first Final Report under the Markets in Crypto-Assets Regulation (MiCA).
The report, which aims to foster clarity and predictability, promote fair competition between crypto-asset service providers (CASPs) and a safer environment for investors across the Union, includes proposals on:
- Information required for the authorisation of CASPs,
- the information required where financial entities notify their intent to provide crypto-asset services,
- Information required for the assessment of intended acquisition of a qualifying holding in a CASP, and
- How CASPs should address complaints.
ESMA has submitted the Final Report to the European Commission (EC) and will provide further advice and technical guidance in this area if requested by the EC.
More information about the timeline for MiCA implementing measures and the transitional period can be found here.
FUNDS
UCITS and AIFs
Delegated and Implementing Regulations on cross-border notifications under AIFMD and UCITS Directive published in the Official Journal
On 25 March 2024, the following Delegated and Implementing Regulations relating to the UCITS Directive and the AIFMD were published in the Official Journal:
- Commission Implementing Regulation (EU) 2024/910 laying down ITS for the application of the UCITS Directive with regard to the form and content of the information to be notified in respect of the cross-border activities of UCITS, UCITS management companies, the exchange of information between competent authorities on cross-border notification letters and amending Commission Regulation (EU) No 584/2010. It will apply from 14 July 2024;
- Commission Delegated Regulation (EU) 2024/911 supplementing the UCITS Directive with regard to regulatory technical standards (RTS) specifying the information to be notified in relation to the cross-border activities of management companies and UCITS. It will apply from 25 June 2024;
- Commission Delegated Regulation (EU) 2024/912 supplementing the AIFMD with regard to RTS specifying the information to be notified in relation to the cross-border activities of managers of AIFMs. It will apply from 25 June 2024; and
- Commission Implementing Regulation (EU) 2024/913 laying down implementing technical standards (ITS) for the application of the AIFMD with regard to the form and content of the information to be notified in respect of the cross-border activities of AIFMs and the exchange of information between competent authorities on cross-border notification letters. It will apply from 14 April 2024.
The Regulations will all enter into force 20 days following their publication in the Official Journal and apply from the dates set out above.
Directive amending AIFMD and UCITS Directive published in the Official Journal
On 26 March 2024, Directive (EU) 2024/927 amending the AIFMD and UCITS Directive as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds (AIFs) was published in the Official Journal.
The Directive will enter into force on 15 April 2024, twenty days following its publication in the Official Journal. By 16 April 2026, Member States must adopt and publish the laws, regulations and administrative provisions necessary to comply with the Directive. Member States are required to apply these measures from 16 April 2026, except for the measures transposing Article 1(12), and those transposing Article 2(7) with regard to Article 20a of the UCITS Directive, which they must apply from 16 April 2027.
Packaged retail and insurance-based investment products Regulation (PRIIPs)
The European Supervisory Authorities (ESAs) update Q&A on the PRIIPs Key Information Document (KID)
On 15 March 2024, the ESAs updated their Q&As on the PRIIPs Regulation Key Information Document (KID).
Q&As have been added in relation to issues including: (i) clarifying the term “PRIIPs open to subscription”; (ii) the difference between a “benchmark” and a “proxy” under the PRIIPs Delegated Regulation; (iii) the types of product category with regard to market risk assessments; (iv) summary risk indicators; and (v) performance scenarios.
Money Market Funds Regulation (MMF Regulation)
ESMA publishes Guidelines stress test scenarios
On 6 March 2024, ESMA published Guidelines on stress test scenarios under the MMF Regulation.
SUSTAINABLE FINANCE
Corporate Sustainability Due Diligence Directive (CSDDD)
Council proposes compromise text for Corporate Sustainability Due Diligence Directive
On 15 March 2024, the Council of the EU proposed a compromise text of the Corporate Sustainability Due Diligence Directive to the European Parliament.
The Council failed to formally endorse the previous provisional political agreement that was reached in December last year. Revisions to the text include: (i) a reduction in scope, with less companies required to comply; (ii) the lower thresholds for companies in high-risk sectors have been removed; (iii) the due diligence obligations have been expanded; (iv) directors are no longer subject to a duty of care and are no longer responsible for setting up and overseeing the due diligence obligations; and (v) the timelines for compliance have been extended – the majority will not need to comply until five years after the CSDDD enters into force.
If the European Parliament adopts the revised text, the Council has stated that it will also adopt it, allowing it to be published in the Official Journal. The revised CSDDD is on the European Parliament plenary agenda for adoption on 24 April 2024.
Sustainable Finance
ESMA consults on rules for External Reviewers of EU Green Bonds
On 26 March 2024, launched a consultation on Draft Regulatory Technical Standards (RTS) related to the registration and supervision of external reviewers under the EU Green Bond Regulation (EuGB).
ESMA’s proposals relate to the registration and supervision of entities interested in becoming external reviewers of EU Green Bonds and aim to clarify the criteria used for assessing an application for registration by an external reviewer. In its proposals, ESMA aims to standardise registration requirements and contribute to developing a level playing field through lower entry costs for applicants.
These relate to:
- senior management and analytical resources;
- sound and prudent management, including avoidance of conflicts of interest;
- knowledge and experience of analysts, and
- the outsourcing of assessment activities, forms, templates, and procedures for the provision of registration information.
The Consultation Paper will be of interest to future external reviewers of green bonds and sustainable debt and sustainability assurance providers. ESMA would also like to hear from relevant investors, issuers, and trade associations.
The EuGB entered into force on 21 December 2023 and will apply from 21 December this year.
ESMA will consider the feedback received to this consultation and will submit the draft RTS and ITSs to the European Commission by 21 December 2024.
CySEC DEVELOPMENTS
Circular C622: U.S. Sanctions Guidance
On the 5th of March 2024, CySEC issued Circular C622 (the “Circular”) to inform the Regulated Entities that the Office of Foreign Assets Control (OFAC), issued a Sanctions Advisory on 22 December 2023, titled “Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base” (the ‘Sanctions Advisory’). The OFAC published this Sanctions Advisory to alert foreign financial institutions that the conduct or facilitation of significant transactions or providing any service involving Russia’s military-industrial base runs the risk of being sanctioned by OFAC.
The Sanctions Advisory provides practical guidance to foreign financial institutions on how to identify sanctions risks and implement corresponding controls. Other key points include information on the new OFAC sanctions authorities to target foreign financial institutions, examples of activity that could expose foreign financial institutions to sanctions risk, identifying and mitigating sanctions risks, previous guidance on Russia sanctions and export controls evasion and information on permissible transactions.
Additionally, CySEC draws the attention of Regulated Entities to Circulars C337 and C475 regarding the OFAC’s Specially Designated Nationals And Blocked Persons List (the ‘SDN List’), which is updated regularly, when assessing the money laundering and terrorist financing risks associated with business and client transactions. Sanctions imposed individually by third countries are not directly enforceable in the European Union, however CySEC expects Regulated Entities to consider the SDN List, in the context of their relevant risk assessment and take proportionate actions, including refraining from engaging with affected persons and/or consider reporting to OFAC any blocked/frozen assets of affected customers as a result of these proportionate actions.
CySEC also includes within the Circular a list of useful links and relevant websites and encourages the Regulated Entities to sign up and receive OFAC email alerts and consult, on an ongoing basis, the provided links.
Circular C623: Suspension of redemption of UCITS and AIF units on 29 March and 1 April 2024 On 19 March 2024, CySEC issued Circular C623, where it informed Regulated Entities that the redemption of UCITS and AIF units is suspended on 29 March and 1 April 2024. 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 C623, 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.
CySEC’s Announcement and Press Release for its Supervisory Priorities for 2024
On 27 March 2024, CySEC issued an announcement (‘the Announcement’) and a press release (‘the Press Release’), providing insight into its supervisory priorities for the year 2024 within the fields of investment services and asset management.
Investment Services
Within the field of investment services, CySEC will address its supervisory focus on various areas, such as, on examining the adherence of CIFs to professional conduct rules, assessing practices that may have negative impacts on investors and markets and evaluating the adequacy of CIFs’ governance framework with an emphasis on remuneration policies and effective procedures for identifying, monitoring and managing the risks they are exposed to or could be exposed to.
Moreover, with the Announcement and the Press Release, CySEC informs of its key priorities for the year 2024, which include the enhanced supervision of high and medium-high risk CIFs, with particular focus on the cross-border activities to prevent any client detriment arising from the distribution of complex financial products (e.g. CFDs).
Asset Management
Within the field of asset management, CySEC will address its supervisory focus on various areas, such as, on ensuring adherence to regulatory mandates (sustainability risks and the relevant disclosure requirements, asset valuation procedures etc.) and enhancing the quality and oversight of data pertaining to transactions and derivative contracts as reported in accordance with the AIFMD.
In addition to the above, the Announcement contains a list with the actions CySEC expects Regulated Entities to take, which includes among others, reviewing their policies, procedures and internal controls arrangements put in place to ensure compliance with the regulatory requirements and evaluating the adequacy of governance structures and the effectiveness of control functions such as compliance, internal audit and risk management.
It is important to note that Regulated Entities shall expect ongoing engagement from CySEC’s supervisory teams with various ways (e.g. onsite inspections, thematic reviews) on the areas mentioned in the Announcement and the Press Release, as well as specific feedback, including communication with CySEC’s Board of Directors, whilst the supervisory priorities included in the Announcement and the Press Release are subject to potential changes based on new developments or events.
Please refer to the Announcement and the Press Release for more information.