Financial Services Regulation and Compliance - Investment Firms February 2024
Domestic
Central Bank of Ireland Priorities 2024 – Outlook Report – MiFID investment firm sector
On 29 February 2024, the Central Bank of Ireland (CBI) published its Regulatory and Supervisory Outlook Report (RSO), together with a letter from Governor Makhlouf setting out his views on the macro-financial environment.
Section 4 of the RSO provides a sectoral focus outlining trends and supervisory strategies, including for Markets in Financial Instruments Directive (MiFID) investment firms. A key supervisory priority for the sector centres on protecting the interests of those who use financial services, with a focus on ensuring consumer interests are upheld, in addition to the safeguarding of client assets.
The RSO lists the key sectoral supervisory activities for 2024 and 2025 which include:
- A program of planned and trigger based supervisory engagements across prudential, retail and wholesale conduct and safeguarding client asset requirements.
- Intervening where required to address issues that could give rise to investor harm, or could undermine the safety and soundness of firms or market integrity.
- Risk assessments on compliance and risk resourcing and effectiveness.
- Risk assessments focusing on IT and operational risk frameworks, with specific consideration given to data management and cybersecurity control.
European
ESMA clarifies certain best execution reporting requirements under MiFID II
On 13 February 2024, the European Securities and Markets Authority (ESMA) issued a public statement providing market participants with clarity in relation to the reporting requirements under RTS 28, pending full application of the new rules under MiFID II.
ESMA seeks to promote coordinated action by National Competent Authorities (NCAs) in relation to the obligation by investment firms to publish some reports on best execution in accordance with Article 27(6) MiFID II.
From the issuance of the statement, ESMA expects NCAs not to prioritise supervisory actions towards investment firms which relate to the periodic RTS 28 reporting obligation until the transposition into national legislation in all Member States of the MiFID II review. Investment firms are no longer required to annually report detailed information on trading venues and execution quality through RTS 28 reports, and this statement will promote coordinated action by National Competent Authorities.
The CBI has welcomed this statement and confirmed that it will apply the outlined measures.
Council of the European Union adopts new rules to strengthen market data transparency
On 20 February 2024, the Council of the EU adopted changes to the EU’s trading rules. The changes purport to give investors better access to the consolidated market data necessary to invest in financial instruments and increase the global competitiveness of the EU’s capital markets and ensure a level playing field.
The changes concern the Markets in Financial Instruments Regulation (MiFIR) and MiFID which regulate investment services and financial market activities in the EU.
The adopted rules establish EU-level consolidated tapes which bring together market data provided by platforms on which financial instruments are traded in the EU. The rules will also impose a general ban on payment for order flow, a practice that involves brokers receiving payments for forwarding client orders to certain trading platforms.
The texts are to be published in the EU’s Official Journal and will enter into force 20 days following the date of their publication.
Provisional agreement reached on a proposal for a regulation on ESG rating activities
On 5 February 2024, the Council of the European Union and the European Parliament reached a provisional agreement on a proposal for a regulation on ESG rating activities, which aims to boost investor confidence in sustainable products.
The new rules aim to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations of ESG ratings providers and preventing potential conflicts of interests.
The provisional political agreement is subject to approval by the Council and the Parliament before going through the formal adoption procedure. The regulation will begin to apply 18 months after its entry into force.
Council and Parliament agree on improvements to EU clearing services
On 7 February 2024, the Council and the Parliament announced that they had reached a provisional political agreement on a review of the European Market Infrastructure Regulation and Directive. The review aims to make the EU clearing landscape more attractive and resilient, to support the EU’s open strategic autonomy and to preserve the EU’s financial stability.
The Council of the EU announced that the proposed review contains several legislative measures to improve EU clearing services by streamlining and shortening procedures, improving consistency between rules, strengthening central counterparty (CCP) supervision and requiring market participants of substantial systemic importance, subject to clearing obligations, to have an operationally active account at an EU CCP.
The provisional agreement strengthens cooperation, coordination and information sharing among supervisors and ESMA, while ensuring an appropriate division of tasks between national authorities and ESMA.
ESMA requirements when posting investments recommendations on social media
On 6 February 2024, ESMA and the NCAs published a warning raising awareness of the requirements established by the Market Abuse Regulations (MAR) which apply when posting investment recommendations on social media. They also warn about the risks of market manipulation in such publications.
The warning details:
- what constitutes an investment recommendation
- the applicable regulations
- the consequences of non-compliance
- who can produce such recommendations
- to which MAR category they belong
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 21 March 2024