INVESTMENT SERVICES & CAPITAL MARKETS
MiFID/MiFIR
ESMA reminds firms of the impact of inflation in the context of investment services to retail clients
On 27 September 2022, ESMA published a statement reminding firms to consider inflation and inflation risk when applying relevant MiFID II requirements in the interest of investor protection.
Over the past months inflation rates have risen in the EU, as in the rest of the world, and this growth in inflation has impacted households both in their daily lives and in their investments and investment decisions.
ESMA notes that from an investor protection perspective, this trend poses a risk for retail investors, as some of them will not fully appreciate the link between inflation and financial markets and may not fully understand how considerations on inflation should be factored in when they make saving and investment decisions.
ESMA is therefore issued this Statement to remind firms of relevant MIFID II requirements as it believes that investment firms may play a role in considering inflation and inflation risk, both when manufacturing and distributing investment products and when providing investment services to retail clients. Investment firms can also help raising clients’ awareness of inflation risk.
ESMA and the national competent authorities (NCAs) will continue to monitor closely financial markets and their participants in the interest safeguarding the stability of the EU’s financial system by enhancing the protection of investors and promoting stable and orderly financial markets.
ESMA will not perform the November SI and liquidity calculations for bonds due to quality issues
On 19 October 2022, ESMA announced that it will exceptionally make available only the SI regime calculations for equity, equity-like and non-equity instruments by 1 November.
ESMA will not publish the November results of the quarterly assessment of bond liquidity and the systematic internaliser (SI) regime data for bonds due to data quality issues.
ESMA is following up to ensure a prompt resolution of the issue ahead of the next publication in February 2023.
ESMA opinion on Product Intervention Measures implemented by BaFIN in Germany with respect to certain futures
On 26 October 2022, ESMA announced that it had issued an opinion on the Product Intervention Measure on Futures with additional payment obligations taken by the German National Competent Authority, BaFIN.
The BaFin national measure consists of a permanent prohibition of the marketing, distribution, or sale of futures with additional payment obligations to retail clients unless:
- the additional payment obligations for retail clients are contractually excluded by the product provider;
- before entering into the transaction, the retail client confirms to the product provider that it is purchasing the future with additional payment obligations solely for hedging purposes (the hedging carve-out); or
- the Future with additional payment obligations is purchased by the retail client for the purpose of settling or closing out existing (open) future positions that were entered into by that investor before the national measure took effect.
The abovementioned measure is intended to apply both to futures providers authorised in Germany and to futures providers authorised in another Member State that provide investment services and/or perform investment activities in Germany by way of a branch or the freedom to provide services.
According to BaFin, the national measure addresses the significant investor protection concerns by establishing an appropriate and consistent level of protection that limits the losses which retail clients who trade futures in Germany for speculative purposes can incur. BaFin further considers that any potential negative impact of the national measure on retail clients – particularly in terms of reduced investment opportunities – is proportionate and will be outweighed by the investor protection benefits of the measure.
ESMA details, within its Opinion, that the BaFin’s proposed measure is justified and proportionate. In the Opinion, ESMA encourages NCAs to monitor Futures with additional payment obligations in their respective markets to assess whether similar risks for retail investors as those identified by BaFin could arise there.
Central Securities Depositories Regulation
Delegated Regulation delaying application of CSDR mandatory buy-in regime published
On 13 October 2022, Delegated Regulation (EU) 2022/1930 amending the RTS on settlement discipline (Delegated Regulation (EU) 2018/1229) to suspend the application date of the mandatory buy-in regime under CSDR, was published in the Official Journal.
The application of the mandatory buy-in regime will now be deferred from 1 February 2022 until 2 November 2025 in order to avoid negative impacts on the efficiency and competitiveness of capital markets in the EU.
The Delegated Regulation enters into force on 2 November 2022, 20 days following its publication in the Official Journal.
ESMA updates Q&As on CSDR
On 20 October 2022, ESMA published an updated version of its Q&As on the implementation of the CSDR.
ESMA has updated three Q&As in relation to settlement discipline. In particular, the new Q&As concern the calculation, scope, and costs and process of cash penalties.
EMIR
Delegated Regulation temporarily expanding the pool of eligible collateral under EMIR
On 21 October 2022, the European Commission adopted a Delegated Regulation amending the RTS laid down in Delegated Regulation 153/2013 relating to temporary emergency measures on collateral requirements under Article 46(3) of EMIR.
As a result of the recent political and market developments, there have been significant price and volatility increases on energy markets and central counterparties (CCPs) have imposed margin increases to cover the related exposures. These increases have created liquidity strains on Non-Financial Counterparties (NFCs), resulting in them either reducing their positions or leaving them improperly hedged, which exposes them to further price variations.
The amending regulation attempts to manage this issue by temporarily expanding the pool of eligible collateral to uncollateralised bank guarantees for NFCs acting as clearing members and public guarantees for all types of counterparties.
The amending Regulation will enter into force on the day after its publication in the Official Journal. The amendments are temporary and will expire 12 months after the amending Regulation enters into force. However, depending on the evolution of the energy derivatives market the Commission would be prepared to ask ESMA for an extension.
ESMA
ESMA five-year strategy
On 10 October 2022, ESMA launched its 2023-28 five-year strategy.
In the Strategy, ESMA details its long-term priorities and how it will use its competences and toolbox to respond to future challenges and developments.
ESMA will focus on strengthening supervision, enhancing the protection of retail investors, fostering effective markets and financial stability, enabling sustainable finance, as well as facilitating technological innovation and effective use of data.
Main elements of the Strategy
Fostering effective markets and financial stability – ESMA actively supports the deepening of European capital markets, ensuring their integrity and making them more effective. To this end, for the next five years, the Authority will focus on: ensuring fair, orderly and effective markets, increased transparency (e.g. through implementing the European Single Access Point) as well as enhancing financial stability. We will continue developing, maintaining and streamlining the Single Rulebook and supporting the common EU’s voice in the international regulatory and supervisory discussions.
Strengthening supervision of EU financial markets – ESMA’s and the national competent authorities’ (NCAs) activities are complementary and work to strengthen supervision across the EU single market. In the Strategy, ESMA highlights the ambition to achieve a common EU supervisory culture, risk prioritisation, and the convergence of supervision approaches and outcomes.
Enhancing protection of retail investors – ESMA and the NCAs will do all they can to ensure that investors are effectively protected, with a particular focus on retail investors. In addition, in the Strategy, we put forward actions related to investor engagement and effective information and disclosure.
Enabling sustainable finance – By embedding sustainability in all its activities, ESMA will support the transition to a more sustainable economic and financial system. The priorities from the Sustainable Finance Roadmap go hand in hand with the paths mentioned in the Strategy, namely: effectiveness and integrity of ESG information, an improved ESG regulatory framework and supervision, and a recognition of the role of retail investors in financing the transition to a greener economy.
Facilitating technological innovation and effective use of data – ESMA will endeavour to ensure that financial regulation does not hinder innovation, while maintaining a level playing field between emerging players and products and more traditional ones. ESMA’s focus will be on assessing the impact of technologies used in financial markets on the existing regulatory framework and implementation of the upcoming EU legislation in this space.
ESMA will further strengthen its role as data and information hub in the EU and contribute to extending the effective use of data in financial market supervision.
ESMA Annual Work Programme 2023
As a first deliverable of the Strategy, ESMA put forward its Annual Work Programme 2023 in which it gave a particular interest to sustainability, technological change and protection of retail investors.
FINANCIAL CRIME
European Commission assessment of money laundering and terrorist financing risks
On 27 October 2022, the European Commission published a report to the European Parliament and the Council on the assessment of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities.
This report is the third supranational risk assessment by the European Commission and this year is made up of two documents: the report and a detailed Staff Working Document, which read together provide a comprehensive mapping of risks on all relevant areas, as well as the necessary recommendations to counter them. The report also assesses the degree to which the European Commission’s recommendation for mitigating measures in its 2019 report have been implemented and evaluates the remaining risks. The European Commission will monitor the implantation of the report, in principle by 2024. That review will also assess how EU and national measures affect risk levels, in the light of the changes that may be introduced to the current EU regulatory framework.
SUSTAINABLE FINANCE
ESMA Strategy
ESMA updates Strategy for 2023-2028 to include ESG disclosures
On 27 October 2022, ESMA published a press release announcing that it is updating its Union Strategic Supervisory Priorities to include ESG disclosures alongside market data quality.
The new priority of ESG disclosures replaces costs and performance for retail investment products. ESMA and the National Competent Authorities (NCAs) also intend to foster transparency and comprehensibility of ESG disclosures across key segments of sustainable finance value chain such as issuers, investment managers or investment firms and hence tackle greenwashing, to accompany the growing demand for ESG-related financial products.
ESMA also aims to gradually promote an increased scrutiny on ESG disclosures through effective and consistent supervision.
EU Taxonomy Regulation
European Supervisory Authorities draft RTS on fossil gas and nuclear energy investments disclosures
On 30 September 2022, the European Supervisory Authorities (ESAs) published a joint final report on draft RTS on information to be provided in pre-contractual documents, on websites, and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities.
The ESAs propose to add specific disclosures to provide transparency about investments in taxonomy-aligned gas and nuclear economic activities. Specifically, the disclosures: (i) add a yes/no question in the financial product templates of the SFDR Delegated Regulation to identify whether the financial product intends to invest in such activities; if the answer was yes, a graphical representation of the proportion of investments in such activities would be required; and (ii) implement minor technical revisions to the Delegated Regulation to correct inconsistencies observed after its publication.
The European Commission will now scrutinise the draft RTS and endorse them within three months of their publication.
European Commission publishes FAQs on interpretation of Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation
On 6 October 2022, the European Commission published a Commission Notice on the interpretation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of eligible economic activities and assets.
The FAQs aim to clarify the content of Commission Delegated Regulation (EU) 2021/2178 (Disclosures Delegated Act), which sets out the content and presentation of information to be disclosed. These FAQs complement FAQs published by the European Commission in December 2021.
Sustainable Finance Disclosure Regulation
Delegated Regulation incorporating nuclear and gas disclosures into SFDR RTS
On 31 October 2022, the European Commission adopted a Delegated Regulation and Annexes amending and correcting the SFDR RTS (Delegated Regulation (EU) 2022/1288) as regards the content and presentation of information in relation to disclosures in pre-contractual documents and periodic reports for financial products investing in environmentally sustainable economic activities.
The Delegated Regulation amends the SFDR RTS to ensure that investors receive information that should be provided in pre-contractual documents, on websites and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities.
The Regulation will enter into force on the third day following its publication in the Official Journal.
CySEC DEVELOPMENTS
Law 154(I)/2022 amending the Open Ended Undertakings for Collective Investments Laws of 2012-2021
On 12 October 2022 the CySEC published on its website the open-ended undertakings for collective investment (amending) law of 2022 (Law 154(I)/2022) (in Greek only), which is the Cypriot transposition of Directive (EU) 2021/2261 of the European Parliament and of the Council of 15 December 2021 amending Directive 2009/65/EC (UCITS Directive) as regards the use of key information documents by management companies of undertakings for collective investment in transferrable securities (UCITS).
The amending law provides that where UCITS Management Companies draft a Key Information Document in accordance to Regulation No. 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs), they will not be required to draft a Key Investor Information Document in accordance with the provisions of articles 62 through to 65 and 70(2) through to 70(5).
Law 154(I)/2022 shall come into effect on 1 January 2023.
