INVESTMENT SERVICES & CAPITAL MARKETS
ESMA promotes clarity to market participants on best execution reporting under MIFID II
On 14 December 2022, ESMA issued a statement to national competent authorities (NCAs) to deprioritise supervisory actions towards execution venues relating to the periodic reporting obligation on them to publish the RTS 27 reports, from 1 March 2023.
This obligation is temporarily suspended until 28 February 2023 under the Capital Markets Recovery Package, but is intended to be permanently deleted under the European Commisssion’s review of MIFID II/MIFIR, which is currently subject to the legislative procedure at the European Parliament and the Council.
ESMA guidance for supervision of cross-border activities of investment firms
On 14 December 2022, ESMA published a supervisory briefing with the objective of ensuring convergence in the EU in the supervision of the cross-border activities of investment firms.
ESMA is of the view that, to apply a risk-based approach in relation to the supervision of cross-border activities to retail clients, there are certain minimum steps that need to be taken by the supervising national competent authority (NCA). This includes:
- at authorisation stage, assessing whether a firm has cross-border plans and whether it is fit to carry them out;
- collecting minimum data on firms’ cross-border activities to retail clients on a regular basis; and
- as part of ongoing supervision, it entails:
(a) ensuring that specific cross-border risks are sufficiently captured in the general risk-based approach that the NCA applies; and
(b) when performing investigations / inspections on overall firms’ activities, ensuring adequate representation of firms providing cross-border activities in the sample of firms selected and/or through samples relating to firms’ cross-border based on their nature, scale and complexity.
The content of this supervisory briefing is not subject to any ‘comply or explain’ mechanism for NCAs and is non-binding.
ESMA updates Q&As on MIFID II and MIFIR market structures topics
On 16 December 2022, ESMA updated its Q&As on MIFID II and MIFIR market structures topics.
ESMA has added a Q&A under the multilateral and bilateral systems section, regarding whether an investment firm acting as a single liquidity provider on a regulated market and/or a multilateral trading facility (MTF) can operate an systematic internaliser (SI).
Council of the European Union publishes texts on proposed amendments to MIFIR and MIFID II
The texts include:
- a proposal for a Regulation amending MIFIR, as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting; and
- a proposal for a Directive amending MiFID II on markets in financial instruments.
The proposals aim to empower investors, in particular smaller and retail investors, by enabling them to access the necessary market data to invest in shares or bonds more easily, and by making EU market infrastructures more robust. The proposed amendments are also intended to increase market liquidity, making it easier for companies to get funding from capital markets.
The Council of the EU announced it had agreed a mandate to start negotiations with the European Parliament on the proposed Regulation and Directive amending MIFIR and MIFID II on 20 December 2022.
ESMA publishes guidelines for reporting under EMIR
On 20 December 2022, ESMA published a final report containing guidelines for reporting trades in derivatives and obligations for trade repositories (TRs) under EMIR REFIT.
The guidelines aim to further enhance the harmonisation and standardisation of reporting under EMIR contributing to the high quality of data necessary for the effective monitoring of the systemic risk. It is also hoped that standardisation of reporting will help to contain the costs along the complete reporting chain.
The guidelines provide clarifications on the following aspects: (i) transition to reporting under the new rules; (ii) the number of reportable derivatives; (iii) intragroup derivatives exemption from reporting; (iv) delegation of reporting and allocation of responsibility for reporting; (v) reporting logic and the population of reporting fields; (vi) reporting of different types of derivatives; (vii) ensuring data quality by the counterparties and the TRs; (viii) construction of the Trade State Report and reconciliation of derivatives by the TRs; and (ix) data access.
The guidelines are accompanied by the validation rules and the reporting instructions. The validation rules document sets out detailed technical rules on how the TRs should verify the completeness and accuracy of the reported data as well as the conditions and thresholds to be applied to determine whether the values reported by both counterparties match or not.
They also contain a template for notifications of reporting errors and omissions to the national competent authorities. The reporting instructions contain EMIR XML messages which were updated or newly developed based on the revised technical standards and validation rules. A fully standardised format for reporting will eliminate the risk of discrepancies due to inconsistent data. End-to-end reporting in ISO 20022 XML is expected to further enhance data quality and consistency and mitigate the data integrity risks. ESMA will continue to engage with market participants with a view to clarifying any remaining doubts and to facilitate a smooth transition to reporting under EMIR REFIT.
The guidelines will apply from 29 April 2024.
Central Securities Depositories Regulation
Member States agree position to revise EU rules on Central Securities Depositories
On 20 December 2022, the Council of the EU announced that EU Member States had settled their negotiating position on a proposed update of the Central Securities Depositories Regulation.
The planned review aims to make EU securities settlement more efficient by simplifying requirements and clarifying authorisation processes, among other things. Now that a negotiating position has been reached, the Council of the EU can start negotiations with the European Parliament to agree on a common text. The European Parliament is still in the process of adopting its position.
EU Capital Markets Union
European Commission proposals to further develop the EU’s Capital Markets Union
On 7 December 2022, the European Commission published a press release on the Capital Markets Union (CMU) regarding new proposals on clearing, corporate insolvency and company listing, with the aim of making EU capital markets more attractive.
The European Commission has put forward three measures to further develop the EU’s CMU:
- to make EU clearingservices more attractive and resilient, supporting the EU’s open strategic autonomy and preserving financial stability.
- to harmonise certain corporate insolvency rules across the EU,making them more efficient and helping promote cross-border investment.
- to alleviate – through a new Listing Act – the administrative burden for companies of all sizes, in particular SMEs, so that they can better access public funding by listing on stock exchanges.
The clearing package consists of:
- a Communication
- a Regulation amending the European Market Infrastructure Regulation (EMIR), the Capital Requirements Regulation (CRR) and the Money Market Funds (MMF) Regulation
- a Directive amending the Capital Requirements Directive (CRD), Investment Firm Directive (IFD), and the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS)
The listing package consists of:
- an amending Regulation amending the Prospectus Regulation, Market Abuse Regulation and the Markets in Financial Instruments Regulation
- an amending Directive amending the Markets in Financial Instruments Directive and repealing the Listing Directive
- a Directive on multiple-vote shares
The corporate insolvency package consists of:
- a Directive on corporate insolvency.
The six respective legislative proposals will be submitted to the European Parliament and the Council for adoption.
European Banking Authority
EBA consultation on guidelines on the effective management of ML/TF risks when providing access to financial services
On 6 December 2022, the European Banking Authority (EBA) published a consultation on a new set of guidelines on policies and controls for the effective management of money laundering and terrorism financing (ML/TF) risks when providing access to financial services.
The new guidelines specify further the policies, procedures and controls firms should have in place under Article 8(3) of under the Fourth Anti-money laundering Directive (MLD4), including in situations where provisions in Article 16 of the Payments Account Directive apply, which introduces the right of individuals to open and maintain a payment account with basic features.
The areas covered in the guidelines include:
- general requirements. Before taking a decision to reject or to terminate a business relationship, credit and financial institutions should satisfy themselves that they have considered, and rejected, all possible mitigating measures that could reasonably be applied in the particular case, taking into account the ML/TF risk associated with the existing or prospective business relationship. They should also document any decision to refuse or terminate a business relationship and the reason for doing so
- adjusting the intensity of monitoring measures. Credit and financial institutions should set out in their policies and procedures how they adjust the level and intensity of monitoring in a way that is commensurate to the ML/TF risk associated with the customer
- targeted and proportionate limitation of access to products or services. Credit and financial institutions’ policies and procedures should, where permitted by national law, include options and criteria on adjusting the features of products or services offered to a given customer on an individual and risk-sensitive basis
- information on complaint mechanisms. Credit and financial institutions should inform customers about complaint mechanisms that are available to them.
The EBA is also consulting on amendments to its guidelines on ML/TF risk factors, which will include an annex that sets out factors credit and financial institutions should consider when assessing the ML/TF risks associated with a business relationship with customers that are not-for-profit organisations.
The deadline for comments is 6 February 2023.
Council of the EU adopts position on proposed Anti-money laundering Regulation (AML Regulation) and Sixth Anti-money laundering Directive (AMLD6)
On 7 December 2022, the Council of the EU announced that it has agreed its position on an AML Regulation and a new directive (AMLD6).
The new anti-money laundering and counterterrorism financing (AML/CTF) rules will be extended to the entire crypto sector, obliging all crypto-asset service providers (CASPs) to conduct due diligence on their customers.
This means that they will have to verify facts and information about their customers. In its position, the Council of the EU requires CASPs to apply customer due diligence measures when carrying out transactions amounting to €1000 or more and adds measures to mitigate risks in relation to transactions with self-hosted wallets. The Council of the EU also introduces specific enhanced due diligence measures for cross-border correspondent relationships for crypto-asset service providers. An EU-wide maximum limit of €10,000 is set for cash payments.
Now that the Council of the EU has agreed its position on the AML Regulation and AMLD6, it is ready to start negotiations with the European Parliament in order to agree on a final version of the texts.
European Commission adopts Delegated Regulation amending list of high-risk third countries under the Fourth Anti-money laundering Directive (AMLD4)
On 19 December 2022, the European Commission adopted a Draft Delegated Regulation amending the list of high-risk third countries with anti-money laundering and counterterrorism financing (AML/CTF) deficiencies produced under Article 9(2) of the AMLD4.
The Delegated Regulation will amend the Annex to Delegated Regulation (EU) 2016/1675 by adding to the table I of the Annex the following third countries that have been identified as having strategic AML/CTF deficiencies: the Democratic Republic of the Congo, Gibraltar, Mozambique, Tanzania, and the United Arab Emirates. The following third countries will be removed from the table in the Annex as they no longer present strategic AML and CTF deficiencies: Nicaragua, Pakistan, and Zimbabwe.
The Delegated Regulation will now be submitted to the Council of the EU and European Parliament for approval. The Delegated Regulation will then enter into force twenty days after its publication in the Official Journal.
AIFs and UCITS
ESMA final report on notifications for cross-border marketing and cross-border management of AIFs and UCITS
On 21 December 2022, ESMA published a final report on draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITS.
The draft RTS contained in the report specify the information to be provided by management companies and AIFMs wishing to carry out their activities in host Member States. The draft ITS contain the templates to be used by management companies, UCITS and AIFMs to notify their intention to carry out their activities in host Member States and specify the procedure for the communication of information between competent authorities. The purpose of the draft technical standards is to facilitate the process for notifying cross-border marketing and management activities in relation to UCITS and AIFs, as well the cross-border provisions of services by fund managers, by standardising the content and the format of the information to be provided by management companies, UCITS, and AIFMs.
The draft technical standards have been submitted to the European Commission for adoption within three months. Following their adoption, the Delegated and Implementing Regulations will then be subject to the non-objection of the European Parliament and of the Council of the European Union.
ESMA updates Q&As on application of AIFMD
On 16 December 2022, ESMA updated its Q&As on the application of the AIFMD.
ESMA has updated a question under the scope section of the Q&As regarding managers of SPACs (Special Purpose Acquisition Companies).
ELTIFs (European Long-Term Investment Funds)
Council of EU releases political agreement text of Regulation amending ELTIF Regulation
On 7 December 2022, the Council of the EU published an information note on the proposed Regulation amending the ELTIF Regulation.
The information note includes a letter sent to the Chair of the EP’s Committee on Economic and Monetary Affairs. In an Annex to the letter, the Council of the EU sets out the text of the proposed Regulation. The letter states that if the European Parliament adopts the text at first reading, the Council of the EU would also adopt the text.
ESAs update Q&As on PRIIPs KID
On 21 December 2022, the Joint Committee of the European Supervisory Authorities (ESAs) published an updated version of their Q&As on the PRIIPs key information document (KID).
The document includes Q&As that relate to the amendments introduced by Commission Delegated Regulation (EU) 2021/2268 that are applicable on 1 January 2023. As some of the Q&As concerned requirements that were amended by Commission Delegated Regulation (EU) 2021/2268, the Q&As needed to be revised or deleted. These revisions or deletions have been published in the 21 December 2022 version of the Q&As.
The revised Q&As include the following new sections:
- performance scenarios
- PRIIPs with a recommended holding period of less than one year
- multi-option products; and
- methodology of calculation of costs.
Circular C538: Guidance in relation to the requirement to raise capital from investors within a specified time period
On 13 December 2022, CySEC issued Circular C538, which reminded AIFMs (authorised and registered and internally managed Funds of the provisions of Circular C321 regarding the raising of capital from investors within twelve months from the date when the funds are authorised. For the purposes of the Circular C538, the term ‘Funds’ also refers to investment compartments of Umbrella Funds, and as such the requirement applies separately to each investment compartment.
Specifically, Part I of C538 provides a non-exhaustive list of documents that AIFMs should keep in their records, in order to ensure their compliance with the raising capital requirements.
Part II of C538 states that AIFMs are expected to complete and submit Form 124-00-02 (hereinafter the ‘Form’), for each fund under their management when the minimum amount of capital is raised (as per articles 14(1)(1) and 129(1)(a) of the AIF Law).
In cases where the AIFMs or internally managed Funds fail to raise the requested capital they should submit to CySEC a request for the revocation of the Fund’s authorisation. Otherwise CySEC may decide to initiate such a process, involving a call for representations.