CBI publish updated authorisation guidance notes for MiFID investment firms
On 1 May 2024, the Central Bank of Ireland (CBI) published updated versions of its guidance notes for authorisation as a MiFID investment firm.
In particular, the CBI has published the following documents:
The updated guidance notes can be found on the CBI’s webpage.
Patricia Dunne, Director of Securities and Markets Supervision, comments on Central Bank of Ireland expectations in a changing financial environment
On 8 May 2024, Director of Securities and Markets Supervision for the CBI, Patricia Dunne reflected on the key principles that guide the CBI’s supervision of securities markets and discussed the Regulatory & Supervisory Outlook Report (report) issued earlier this year. Ms. Dunne stated that the principles that guide the CBI’s supervision of securities markets have not changed.
Acknowledging that firms have ambitious growth strategies, Ms. Dunne stated the CBI will place a higher burden on risk and control management frameworks. Further, Ms Dunne noted that one of the key supervisory priorities highlighted in the CBI’s 2024 Regulatory & Supervisory Outlook Report was that “Firms address deficiencies identified in their governance, risk management and control frameworks to ensure they are effective, both in the current environment and into the future,” noting that firms should place an emphasis on “proactive risk management.”
Ms. Dunne noted that an area of focus for the CBI and the European Securities Markets Authority (ESMA) are the ineffective pre-trade controls of firms noting the CBI supervision team have recently commenced a thematic assessment of pre-trade controls (assessment). The assessment seeks to examine firms’ frameworks for the establishment, operation and oversight of pre-trade controls and will endeavour to identify how investment firms have implemented overarching pre-trade control frameworks for both manual and algorithmic trading. The assessment will play a key role in the CBI’s response to the Common Supervisory Action (CSA) launched by ESMA in January 2024.
ESMA publishes position paper on building more effective and attractive capital markets in the EU
On 22 May 2024, ESMA published a position paper on “Building more effective and attractive capital markets in the EU”. The paper includes 20 recommendations to strengthen EU capital markets and address the needs of individuals and companies in the EU.
Key proposals at the level of regulation and supervision include modernisation of the EU’s regulatory framework, and the prioritisation of supervisory consistency amongst EU supervisors.
From a company perspective, the paper proposes developing an encouraging ecosystem for public companies and fostering pan-European markets whilst also addressing barriers to integration.
The position paper also addresses proposals to improve market accessibility for individuals including the development of basic long-term investment products and pension systems that are suitably incentivised with the aim of contributing to the development of capital markets.
ESMA releases report on the application of MiFID II marketing requirements
On 27 May 2024, ESMA published a combined report on its 2023 Common Supervisory Action (CSA) and the accompanying Mystery Shopping Exercise (MSE) on marketing disclosure rules under Directive 2014/65/EU (MiFID II) (the report). The report was prepared in conjunction with the National Competent Authorities (NCAs). The report details that marketing communications applied were in compliance with the requirements under MiFID II. Further, it was found that investment firms have procedures in place to ensure compliance with MiFID II in respect of marketing materials.
However, NCAs expressed concerns surrounding sustainability claims included in marketing materials. Additional areas of concern included the need for marketing communications to be clearly identifiable, and to contain a clear and balanced presentation of risks and benefits.
In particular, ESMA stated that, where products and services are marketed as having ‘zero cost’, they should also include references to any additional fees. It also noted that adequate approval and review processes for marketing communications need to be put in place, that firms should ensure compliance with legal requirements, the implementation of adequate record keeping controls and clarity on the involvement of senior management in internal processes.
ESMA issues statement on rules for sharing information during pre-close calls
On 29 May 2024, ESMA issued a statement to issuers reminding them of good practices in relation to pre-close calls.
It observed there had been a number of recent episodes where high volatility in EU share prices took place shortly after pre-close calls. The statement also noted that these events had resulted in the suspicion of the possible disclosure of inside information in the media.
ESMA emphasised that pre-close calls should only provide non-inside information and that any disclosure of inside information should only take place in accordance with the Market Abuse Regulation.
The statement outlined the following good practices to adopt in pre-close calls:
ESMA provides guidance to firms using artificial intelligence in investment services
On 30 May 2024, ESMA issued a statement providing guidance to firms using artificial intelligence (AI) technologies when providing investment services to retail clients. The guidance emphasised the continuing responsibilities of investment firms under MiFID II and their responsibility to prioritise their client’s best interests.
ESMA noted the potential use of AI tools to meet MiFID II obligations including customer service and support, supporting firms in the provision of investment advice and portfolio management services, compliance, risk management, fraud detection and operational efficiency.
In its statement, ESMA also identified the inherent risks posed by the use of AI such as lack of accountability and oversight, lack of transparency, security and data privacy and the reliability of the quality of output.
ESMA emphasises that ensuring compliance with MiFID II requirements and prioritising client’s best interests should serve as key underlying guiding principles for investment firms when leveraging AI. It will continue to monitor the development of the relevant EU legal framework on AI to assess if further action will be required.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 27 June 2024
