Financial Services Regulation and Compliance – Investment Firms June 2022

Domestic

Central bank client asset requirements

On 23 June 2022, the CBI published the final form of the Third Edition of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Companies) Regulations 2022 (the CAR 2022). The CBI has also published a draft guidance note on asset requirements for central bank clients (SELF) to help investment firms and credit institutions comply with the CAR contained in part 6 of CAR 2022. The revised CAR will be applicable to investment firms from 1 July 2023 and to credit institutions from January 1, 2024.

The CAR as contained in Part 6 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Companies) Regulations 2017 (the CAR 2017) will remain in effect until revoked by RAC 2022 on July 1, 2023. The CBI will post the final guidance on the CBI website before the end of the transition period.

European

EBA adopts decision on reporting of supervisory data from competent authorities of investment firms to EBA

On 28 June 2022, the EBA adopted a decision on how competent authorities responsible for supervising investment firms under the Investment Firm Regulation (IFR) will transmit the supervisory data to the EBA. The decision defines the scope, timing and modalities for the submission of data via the European centralized data infrastructure. The first submission is expected by December 31, 2022.

Delegated Regulation on fees relating to the supervision by ESMA of data reporting services providers

On 17 June 2022, Commission Delegated Regulation (EU) 2022/930 supplementing the Markets in Financial Instruments Regulation (MiFIR) was published in the Official Journal of the European Union (PLAY). The delegated regulation specifies the fees relating to the supervision by ESMA of data reporting services providers, the terms of payment of the fees and the transitional provisions for 2022 and 2023.

ESMA Annual Report 2021

On June 15, 2022, ESMA published its 2021 Annual Report. The report identifies ESMA’s main achievements in 2021 and highlights the most significant elements of ESMA’s work in 2021, in particular the development the regulatory framework for sustainable finance and the risks and opportunities arising from the digitization of markets, particularly for retail investors. ESMA’s main areas of focus in 2021 included:

  • protect investors where their growing engagement in sustainable and digital finance exposes them to greenwashing and scams
  • ensuring effective and convergent European supervision
  • to support the renewed focus on the development of a genuine Capital Markets Union

ESAs propose to extend temporary exemption regime for intra-group contracts during EMIR review

On 10 June 2022, the European supervisory authorities (EBA, EIOPA and ESMA – AES) published two final reports containing draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on Bilateral Margin Requirements and the Commission Delegated Regulations on Clearing Obligation. Both RTS drafts propose to extend the current regime of temporary exemptions under the Bilateral Margin Delegated Regulation and the Clearing Obligation Delegated Regulation for intra-group contracts for three years. This will take into account the ongoing assessment of third country equivalence and allow for a review of the intra-group exemption framework as part of the EMIR review. The two RTS projects have been submitted to the European Commission for approval. They are then subject to the non-objection of the European Parliament and the Council.

ESMA proposes to increase the EMIR clearing threshold for commodity derivatives by €1 billion

On June 3, 2022, ESMA published a final report on raising the EMIR clearing threshold for commodity derivatives. The report proposes to raise the threshold from 3 billion euros to 4 billion euros. The report also examines the need for structural changes in the way the threshold should be calculated, the time it will take for these changes to take effect and the exceptional circumstances that non-financial counterparties face.

ESMA publishes technical standards to suspend CSDR buy-back regime

On June 2, 2022, ESMA published a final report on amending the regulatory technical standards on settlement discipline in order to defer the application of the CSDR mandatory buy-in regime for three years. The proposed change builds on the expected changes to the CSDR membership regime set out in the Commission’s legislative proposal for the review of CSDR and the change to CSDR through the DLT Pilot Regulation. The RTS project is submitted to the European Commission for approval. They are then subject to the non-objection of the European Parliament and the Council.

ECB Opinion on proposed changes to MiFIR

On 1 June 2022, the ECB published its opinion on the proposed amendment to the regulation on markets in financial instruments (MiFIR) with respect to improving the transparency of market data, removing barriers to the emergence of a consolidated band, optimizing trading obligations and prohibiting the receipt of payments for the transmission of orders client. The ECB made specific comments on the following points:

  • introduction of the strengthened regime proposed for the “consolidated band”
  • streamlining the pre-trade transparency regime for equities
  • payment restriction for order flow
  • end open access for exchange-traded derivatives
  • other MiFIR provisions that could still be improved

ESMA publishes the results of its call for contributions on ESG ratings

On June 27, 2022, ESMA published a letter to the European Commission providing its conclusions on the call for contributions to gather information on the market structure of ESG rating providers in the European Union (EU). The letter identified a number of key characteristics and trends from the responses received:

  1. ESG rating providers – the market structure is divided between a small number of very large non-European entities on the one hand, and a large number of much smaller European entities on the other.
  2. ESG ratings users – users typically outsource these products on an investor-pays basis to multiple vendors simultaneously. The most common shortcomings identified by users were the lack of coverage of a specific sector or type of entity, insufficient granularity of data, and a lack of transparency around the methodologies used by ESG rating providers.
  3. Entities covered by ESG ratings – dedicate at least some level of resources to their interactions with ESG rating providers, although the amount depends largely on the size of the rated entity itself.

The feedback received indicates an immature but growing market which, after several years of consolidation, has seen the emergence of a small number of large suppliers headquartered outside the EU.

Sanctions imposed in response to the crisis in Ukraine

Since February, the EU has imposed a number of sanctions in response to the crisis in Ukraine. As the crisis develops and sanctions continue to evolve, the CBI publishes details of new restrictive measures/sanctions that are adopted in this regard, along with any associated EU/UN guidance, on their dedicated website. Web page.