UK Financial Regulatory Developments - June 2016 #8

by Dentons

ESMA updates EMIR Q&A

ESMA has updated its Q&A on EMIR. The new questions address:

  • the clearing obligation, specifically about the self-categorisation needed to establish which counterparties belong to which categories; and
  • how counterparties should act if some of their counterparties have not provided the information on the category they belong to.

(Source: ESMA updates EMIR Q&A)


ESMA updates AIFMD Q&A

ESMA has updated its Q&A document on the application of AIFMD. It has added new questions concerning notifications of AIF, the calculation of the total value of assets under management and committed capital in relation to additional own funds requirements. (Source: ESMA updates AIFMD Q&A)


ESMA assesses usefulness of DLT to securities market

ESMA has launched a discussion paper on distributed ledger technology (DLT or blockchains) applied to securities markets.

The discussion paper seeks feedback on ESMA’s preliminary assessment of DLT, in which it identifies the potential benefits of DLT, including higher security, greater efficiency in clearing and settlement and reduced costs. It also identifies a number of legal and technical challenges that would need to be addressed before DLT could be applied widely to securities markets. Comments will be received until 2 September. ESMA also notes it should carry out more research once the markets are better developed. (Source: ESMA assesses usefulness of DLT to securities market)


ESMA reminds firms of responsibilities when selling bail-in securities

ESMA has published a statement which seeks to clarify how credit institutions and investment firms should apply the requirements under the current Markets in Financial Instruments Directive (MiFID) governing the distribution to clients of financial instruments subject to the resolution regime under the BRRD. It is intended to apply both in an advised and non-advised context, and in the context of portfolio management. ESMA also published a press release explaining that firms are likely to issue a significant amount of potentially loss-bearing instruments to fulfil their obligations and it is concerned investors, particularly retail investors, are unaware of the risks they may face when buying these instruments. ESMA emphasises the importance of:

  • providing investors with up-to-date and complete information drafted under the supervision of the compliance function;
  • managing potential conflicts of interest, particularly when a firm sells its own bail-in financial instruments directly to its customers; and
  • ensuring the product is suitable and appropriate for the investor. This may entail collecting more information about the client than usual to reflect the fact that a client could lose money without the firm entering into insolvency.

(Source: ESMA reminds firms of responsibilities when selling bail-in securities: statement and press release)


EBA publishes decision on data for supervisory benchmarking

EBA has published its decision on data supervisory benchmarking. Also published is a list of institutions in respect of which national competent authorities are expected to transmit data. This list of reporting institutions includes 22 entities in the UK. Competent authorities are to submit all 2015 supervisory and supervisory benchmarking data within 10 business days from 30 June. (Source: EBA publishes decision on data for supervisory benchmarking)


Commission adopts BRRD RTS

The Commission has adopted RTS under the Bank Recovery and Resolution Directive (BRRD) on a minimum set of information on specified financial contracts that relevant firms should keep in their detailed records and the circumstances in which the requirement should be imposed. (Source: RTS on BRRD financial contract information and Annex)


Commission adopts proposal to incorporate AIFMD and EMIR into EEA Agreement

The Commission has adopted a proposal for a Council decision on the position to be taken by the EU in the European Economic Area (EEA) Joint Committee concerning the incorporation of the Regulations on the European Supervisory Authorities (ESAs) and a number of related Regulations and Directives. The acts to be incorporated in the EEA Agreement are the:

  • ESAs Regulations;
  • ESRB Regulation;
  • Alternative Investment Fund Managers Directive (AIFMD) and related delegated acts;
  • Short Selling Regulation and related delegated acts;
  • European Markets Infrastructure Regulation (EMIR); and
  • Credit Ratings Agency Regulations and related delegated acts.

The parliament of Liechtenstein has already agreed with the nine draft decisions of the EEA Joint Committee, while the Icelandic and Norwegian parliaments are currently assessing the package of draft decisions. (Source: Commission adopts incorporation of ESAs into EEA Agreement)


Commission adopts more MiFID 2 RTS

The Commission has published its final version of several Regulatory Technical Standards (RTS) under MiFID 2 and MiFIR:

  • RTS under MiFIR on the specification of the offering of pre- and post-trade data and the level of disaggregation of data. This is RTS 14 from ESMA’s September 2015 draft and appears no longer to include emission allowance derivatives within its scope;
  • RTS under MiFIR on access in respect of benchmarks. This is RTS 16 from ESMA’s September 2015 draft and sets the requirement for information on benchmarks to be available to, and for appropriate licences in relation to it to be granted to, central counterparties (CCPs) and trading venues. It also sets terms for ensuring non-discrimination for access and licences;
  • RTS under MiFID 2 on authorisation, organisational requirements and publication of transactions for data reporting services providers (DRSPs). This is RTS 13 from ESMA’s September 2015 draft and sets detailed organisational and related requirements for each type of DRSP covered by MiFID 2;
  • RTS under MiFID 2 on requirements to ensure fair and non-discriminatory co-location services and fee structures. These are ESMA’s September 2015 RTS 10. The Commission has made several changes to ESMA’s original proposed text;
  • RTS under MiFID 2 on the level of accuracy of business clocks. This is ESMA September 2015 RTS 25;
  • RTS under MiFID 2 on the annual publication by investment firms of information on the identity of execution venues and on the quality of execution. This is ESMA’s September 2015 RTS 28, to which the Commission has made some amendments; and
  • RTS under MiFID 2 on the data to be published by execution venues on the quality of execution of transactions. This is ESMA’s September 2015 RTS 27, to which again the Commission has made some changes.

(Source: MiFIR RTS on data disaggregation, MiFIR RTS on benchmark access, MiFID 2 RTS on DRSPs, MiFID 2 RTS on co-location services, MiFID 2 RTS on accuracy of business clocks and Annex, MiFID 2 RTS on execution venues and quality of execution and Annex, and RTS on transaction execution quality and Annex )


Commission consults on cross-border fund distribution

The Commission has launched a consultation on the main barriers to cross-border distribution of investment funds. It includes all forms of fund, so it covers UCITS, alternative investment funds (AIF), European long-term investment funds (ELTIF), European venture capital funds (EuVECA) and European social entrepreneurship funds (EuSEF). The Commission wants to increase the numbers of funds marketed and sold across the EU. The consultation is part of the action plan for capital markets union (CMU) and builds on previous consultations. The Commission seeks views on problems caused by:

  • marketing restrictions;
  • distribution costs and regulatory fees;
  • administrative arrangements;
  • distribution networks;
  • notification processes; and
  • taxation.

Consultation closes on 2 October. (Source: Commission consults on cross-border fund distribution)


EP votes through MiFID 2 postponement

EP has formally voted through the legislation postponing all relevant dates in the revised Markets in Financial Instruments Directive (MiFID 2) and Regulation (MiFIR) package, and dates in other legislation related to these, by one year. As reported in previous FReDs, this means the transposition date will now be 3 July 2017 and most provisions will take effect from 3 January 2018. Markus Ferber, the Rapporteur, said ESMA and mainly the Commission had dawdled, which had caused the delay. (Source: EP votes through MiFID 2 postponement, EP resolution on MiFID 2 delay and EP resolution on MiFIR delay)


FSB publishes insurer resolution planning guidance

FSB has published guidance on developing effective resolution strategies and plans for systemically important insurers to help authorities meet their obligations under international resolution planning requirements. It sets out considerations for determining a preferred resolution strategy based on a strategic analysis of insurers’ business models, the criticality of insurers’ functions and policy holder protection arrangements. It also identifies a range of elements that need to be in place so that a resolution strategy can be credibly and feasibly implemented, including effective cross-border co-operation, information systems and resources to absorb loss. (Source: FSB publishes insurer resolution planning guidance)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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