Financial Services Regulation and Compliance - Investment Firms March 2024
European
Legislation to amend MiFID II and MiFIR published in the Official Journal
On 8 March 2024, the amending Regulation (Regulation (EU) 2024/791) and amending Directive (Directive (EU) 2024/790) to amend the Markets in Financial Instruments Regulation (MiFIR) and the second Markets in Financial Instruments Directive (MiFID II) were published in the Official Journal.
The amending Regulation and Directive contain amendments based on proposals made by the Commission in November 2021 and adopted by the Council on 20 February 2024. 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 adopted rules establish EU-level ‘consolidated tapes,’ or centralised data feeds for different types of assets, which bring together market data provided by platforms on which financial instruments are traded in the EU. They also impose a general ban on payment for order flow, a practice involving brokers receiving payments for forwarding client orders to certain trading platforms.
Regulation (EU) 2024/791 entered into force on 28 March 2024 and Member States are required to transpose Directive (EU) 2024/790 into national law by 29 September 2025.
ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments
On 1 March 2024, the European Securities and Markets Authority (ESMA), published the results of the annual transparency calculations for equity and equity-like instruments.
The calculations include:
- the liquidity assessment
- the determination of the most relevant market in terms of liquidity
- 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
- 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
ESMA has invited market participants 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.
The transparency requirements based on the results of the annual transparency calculations will apply from 1 April 2024 until 6 April 2025.
ESMA T+1 feedback report shows mixed impacts of shortening the settlement cycle
On 21 March 2024, ESMA published the feedback received to its call for evidence on shortening the settlement cycle in the EU.
In the report, ESMA summarised the feedback from market participants during the consultation, focussing 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.
- A wide range of potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment before a decision.
- 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 announced that it will continue to assess the responses received and aims to include lessons learnt from the North American move to T+1 as well as any further feedback received from stakeholders in the Asia Pacific region. ESMA intends to deliver its final assessment to the European Parliament and Council before 17 January 2025.
Transition to the revised MiFIR rulebook
On 21 March 2024, ESMA issued a communication in light of the entry into force on 28 March 2024 of changes introduced by the MiFIR review. ESMA acknowledged that public guidance was necessary on the application of Article 54(3) of MiFIR which foresees the continued application of the delegated acts in place beyond 28 March 2024, until they have been revised.
ESMA is performing an assessment with the Commission on the provisions that may merit further guidance. On 27 March 2024, the Commission published a draft interpretive notice providing clarity to market participants on the transitional provision of the MiFIR review.
ESMA noted that further and more detailed guidance will likely be required and will proceed to develop draft technical standards in order to contribute to the alignment of the Commission delegated Regulations with the revised MiFIR.
ESMA clarifies application of certain MiFIR provisions, including volume cap
On 27 March 2024, ESMA published a statement in relation to the application of certain provisions of MiFIR and MiFID II in light of the changes introduced by Regulation (EU) 2024/791 (the MiFIR review) which entered into force on 28 March 2024 by Directive (EU) 2024/790 (the MiFID II review).
The statement complements the interpretive notices issued by the Commission on 27 March 2024, responds to queries received from market participants and includes practical guidance supporting the transition and consistent application of the revised MiFIR. The statement provides further guidance on the new rules that need to be supplemented by delegated Regulations and the rules that are self-executing. The following areas are covered by the statement: volume cap, equity and non-equity transparency, the systematic internaliser regime, designated publishing entities, and reporting. Regarding the volume cap, ESMA confirmed that DVC data will continue to be published, with the next publication scheduled for early April.
ESMA intends to develop draft technical standards as requested by the revised MiFIR within the set deadlines and to provide more detailed guidance.
ESMA consults on rules for external reviewers of EU green bonds
On 26 March 2024, ESMA published a consultation paper on draft RTS related to the registration and supervision of external reviews under the EU Green Bond Regulation.
The paper explains the background to ESMA’s proposal relating to the technical standards on senior management requirements and analytical outsourcing, sound and prudent management, analytical knowledge, outsourcing of assessment activities and forms, templates and processes for registration.
The paper includes four draft RTS setting out criteria:
- to be assessed at registration relating to senior management and members of the board, as well as analysts, employees and other persons directly involved in assessment activities
- to assess sound and prudent management of conflicts of interest
- for assessing knowledge and experience of analysts
- applicable to outsourcing of assessment activities
and one draft implementing technical standards (ITS) setting out forms, templates and procedures for providing registration information.
ESMA will consider the feedback received to this consultation and submit the draft RTS and ITS to the Commission by 21 December 2024.
ESMA provides market participants with guidance on the clearing obligation for trading with third-country pension schemes
On 27 March 2024, ESMA issued a public statement on deprioritising supervisory actions linked to the clearing obligation for third-country pension scheme arrangements (TC PSA), pending the finalisation of the review of EMIR.
ESMA expects that National Competent Authorities (NCAs) will not prioritise supervisory actions in relation to the clearing obligation for derivative transactions conducted with TC PSAs exempted from the clearing obligation under their third-country’s national law during this period.
ESMA has also additionally recommended that NCAs apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.
European Parliament Committee on Economic and Monetary Affairs (ECON) adopts draft reports on proposed retail investment package
On 20 March 2024, ECON announced that its members had adopted its final draft report on the proposed Directive on retail investment protection. The text will amend the MiFID II Directive, the Insurance Distribution Directive, Solvency II Directive, the UCITS Directive and the AIFM Directive.
MEPs agreed that financial and insurance advisors should provide more transparent, understandable and tailored advice to their clients and that clients should be offered products suitable to their needs. The adopted text also sets out that investment firms would not be allowed to accept fees, commissions or any monetary or non-monetary benefits in relation to the provision of certain management or investment products.
The new rules also aim to enhance the quality of financial advice through professional training and standardising the information provided to customers.
The text will be tabled for approval during the first plenary session in April 2024.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 22 April 2024