Financial Services Regulation and Compliance - Investment Firms October 2022
Domestic
CBI publishes revised monthly client asset report template and guidance note
On 5 October 2022, the CBI published a revised monthly client asset report (MCAR) template in Excel format. The revised MCAR template is now available on the CBI website. The revised template contains rules and data validation. The CBI also published a guidance note to accompany the revised MCAR template.
Investment firms are not required to commence using this template for MCAR reporting at this time and are to continue to submit the existing MCAR until further notice.
European
ESMA and ACER establish joint task force in oversight of energy and energy derivatives market
On 18 October, the EU Agency for the Cooperation of Energy Regulators (ACER) and ESMA are establishing a new joint task force to enhance market surveillance and enforcement in the energy and energy derivatives market. Regulatory oversight of potential market abuse of the trading in energy and financial products falls under two EU regulatory frameworks, namely the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) and the Market Abuse Regulation (MAR). ACER and ESMA are also ready to cooperate in additional areas in the future, such as in the context of the possible new LNG benchmark currently under consideration by the European Commission, and with an enhanced monitoring of risks in energy markets, helping to preserve financial stability in EU markets.
ESMA announces strategic priorities for the next five years (ESMA71-99-2022)
On 10 October 2022, ESMA Chair, Verena Ross, stated that "The 2023-2028 ESMA Strategy is centred around three priorities and two thematic drivers. Fostering effectiveness and stability of the EU markets and enhancing the protection of retail investors, and doing both through strengthened supervision, are at the core of what ESMA is all about. The key twin drivers of sustainability and technological and data innovation are also now embedded across all areas of the organisation."
The main elements of the strategy are:
- fostering effective markets and financial stability
- strengthening supervision of EU financial markets
- enhancing protection of retail investors
- enabling sustainable finance
- facilitating technological innovation and effective use of data
ESMA’s CCP Supervisory Committee releases strategic objectives for 2023-2025 to drive supervisory activities
On 11 October 2022, the CCP Supervisory Committee released three strategic objectives in line with the ESMA's published its 2023-2028 strategy objectives. These strategic objectives are identified for ESMA in relation to CCPs are:
- strengthening EU CCP resilience
- addressing third-country CCP cross-border risks
- deepening risk- and data-driven supervision.
ESMA to work on ESG disclosures as a new Union Strategic Supervisory Priority
On 27 October 2022, ESMA announced it is changing its Union Strategic Supervisory Priorities (USSPs) to include ESG disclosures alongside market data quality. ESMA aims to foster transparency of ESG disclosures across key segments of the sustainable finance value chain and tackle greenwashing. ESMA also aims to gradually promote increased scrutiny on ESG disclosures through effective and consistent supervision. In the context of the second USSP, market data quality, ESMA has already developed and applied common methodologies and thematic reviews. Both ESMA and NCAs will continue to engage into further targeted and concerted supervisory work. Regarding costs and performance for retail investment products, ESMA and the NCAs carried out extensive actions such as:
- common supervisory action (CSA) on costs and fees under the UCITS framework
- CSA on information on MiFID II costs and charges
- mystery shopping exercise (with some NCAs)
- CSA on MiFID II suitability requirements and product governance
- interpretative aids (guidelines, Q&As)
- draft regulations and technical advice
- annual statistical report monitoring costs’ performance
ESMA publish call for evidence on the implementation of the revised Shareholder Rights Directive (SRD2)
On 11 October 2022, ESMA addressed a call for evidence, to persons and entities directly or indirectly impacted by the SRD2, especially investors, issuers, intermediaries, proxy advisors as well as other entities such as consultants and service providers in the investor communication and voting industry. Responses must be submitted by 28 November 2022. ESMA will consider the feedback received when preparing its input for the SRD2 review that will be delivered to the European Commission by July 2023.
European Commission publishes Commission Delegated Regulation containing RTS on contractual template for liquidity contracts for SME growth market issuers' shares – MAR
On 18 October 2022, Commission Delegated Regulation (EU) 2022/1959 with regard to regulatory technical standards (RTS) setting out a contractual template for liquidity contracts for the shares of issuers whose financial instruments are admitted to trading on a small and medium-sized enterprise (SME) growth market under the Market Abuse Regulation (596/2014/EU) has been published in the Official Journal of the EU. The Delegated Regulation will enter into force on 7 November 2022.
ESMA Work Programme 2023 focus on sustainability, technological change and protection of retail investors
On 10 October 2022, Verena Ross, ESMA Chair, said that the 2023 Annual Work Programme (AWP) is the first work programme developed under the ESMA Strategy for 2023-2028 and will see ESMA delivering amongst others, on the priorities we set out in the sustainable finance roadmap, adapting to digitalisation in financial markets and enhancing the access to and quality of supervisory data. A core part of ESMA's mission is to further improve the protection of retail investors and ESMA will do this by promoting the convergence of supervisory and regulatory practices across the EU.
Considering the current challenging market conditions, ESMA will continue close monitoring of financial markets, including CCPs. In that context, and linked to measures for tackling the current energy crisis, it also expects to conduct work to review and clarify the existing rules for these markets. In 2023 ESMA will be taking on new responsibilities in regulating the impact of new technology on financial markets via mandates under DORA, MiCA and the DLT regime. ESMA will continue to supervise several key market infrastructures with a view to foster effective markets and financial stability in the EU.
EBA Report on incorporating ESG risks in the supervision of investment firms - report complementing EBA/REP/2021/18 (EBA/REP/2022/26)
On 24 October 2022, the EBA published its report on incorporating ESG risks in the supervision of investment firms. The report provides an initial assessment for the purposes of prudential supervision under IFD. The report covers assessment of the business model of investment firms, the internal governance and risk management and risks such as risk to capital and liquidity risk.
Proportionality is a key element of the report, which highlights the need to embed ESG considerations in a proportionate manner where the ESG factors and risks could affect the risk profile of the investment firm. This integration should be carried out taking into account not only an investment firm’s business model, size, internal organisation and the nature, scale, and complexity of its services and activities, but also the materiality of its exposure to ESG risks.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 17 November 2022