Select a category:
- AIFMD / UCITS V DIRECTIVE
- AML / CFT
- BANKING & PRUDENTIAL REGULATION
- DIGITAL FINANCE
- MIFID 2 / MIFIR
- SFD / FCD
- SHORT-SELLING REGULATION
- SUSTAINABLE FINANCE
AIFMD / UCITS V DIRECTIVE
06/01 – UCITS – ESMA launches a common supervisory action with NCAs on the supervision of costs and fees of UCITS
ESMA (the European Markets and Securities Authority) is launching a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of UCITS across the European Union (EU). The Common Supervisory Action will be conducted during 2021. The CSAs aim is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation of not charging investors with undue costs. Throughout 2021, NCAs will share knowledge and experiences through ESMA to ensure supervisory convergence in how they supervise cost-related issues, and ultimately enhance the protection of investors across the EU.
01/02 – Investment funds – ESMA finalises rules on standardised information to facilitate cross-border distribution of funds
ESMA has published a final report setting out draft implementing technical standards (ITS) under the Regulation on cross-border distribution of funds ((EU) 2019/1156). The final report includes all relevant ITS required under the Regulation, focusing on: (i) the information to be published on the websites of national competent authorities (NCAs) regarding the national rules governing marketing requirements for funds; and (ii) the regulatory fees and charges levied by NCAs in relation to fund managers’ cross-border activities. The draft ITS also include provisions on the communication of information by NCAs to ESMA for the purpose of developing and maintaining a central database on cross-border marketing of AIFs and UCITS. The draft ITS have been submitted to the EU Commission for endorsement.
24/03 – UCITS – ESMA assesses the compliance with UCITS liquidity rules and highlights areas for vigilance
ESMA has published the results of the 2020 Common Supervisory Action (CSA) on UCITS liquidity risk management. The CSA showed that the overall level of compliance with the applicable rules is satisfactory in most cases, but there is scope for improvement in liquidity management for some UCITS analysed. The exercise also highlighted areas where ESMA will work to further promote convergence across NCAs.
30/03 – AIFMD – ESMA updates AIFMD and UCITS Q&As
ESMA has added two new Q&As on ESMA’s guidelines on performance fees in UCITS and certain types of alternative investment funds. The new Q&As provide clarification on the crystallisation of performance fees, on the timeline of the application of the performance reference period and the scope of the guidelines in respect of European long term investment funds (ELTIFs). ESMA also updated its Q&As on the application of the UCITS Directive with two new Q&As on ESMA’s guidelines on: (i) performance fees in UCITS and, (ii) certain types of alternative investment funds. The Q&As provide clarification on the crystallisation of the performance fees and on the timeline of the application of the performance reference period.
AML / CFT
The EU’s banking regulator today called on Brussels to create an anti-money laundering rulebook that harmonises safeguards like customer checks and sanctions across the bloc. The European Banking Authority published its opinion in response to the European Commission’s “call for advice” on how to harmonise dirty money safeguards in proposals due early next year.
The regulation on the mutual recognition of freezing and confiscation orders will start applying in the EU. With these new rules, it will be easier for EU Member States to cooperate on freezing and confiscating criminal assets located in different Member States. The new regulation will replace the existing rules closing any gaps and potential loopholes exploited by criminals. The new rules will also ensure the rights of victims to restitution and compensation in cross-border cases. They also include safeguards ensuring that mutual recognition of freezing or confiscation orders are in line with the EU Charter of Fundamental Rights. The regulation was published in the Official Journal of the European Union 24 months ago, following the agreement and formal adoption by the Council and the European Parliament. As of tomorrow, the regulation will apply between Member States (except Denmark and Ireland).
BANKING & PRUDENTIAL REGULATION
19/01 – Commission takes further steps to foster the openness, strength and resilience of Europe’s economic and financial system
The European Commission has presented a new strategy to stimulate the openness, strength and resilience of the EU’s economic and financial system for the years to come. This strategy aims to better enable Europe to play a leading role in global economic governance, while protecting the EU from unfair and abusive practices. This goes hand in hand with the EU’s commitment to a more resilient and open global economy, well-functioning international financial markets and the rules-based multilateral system.
11/02 – Supervision – Commission Delegated Regulation (EU) 2021/539 of 11 February 2021 amending Delegated Regulation (EU) no 1222/2014 supplementing Directive 2013/36/EU with regard to regulatory technical standards for the specification of the methodology for the identification of global systemically important institutions and for the definition of subcategories of global systemically important institutions was published in the Official Journal
In July 2018, the BCBS published a revised methodology for assessing global systemically important banks. That revised methodology introduced a new indicator to measure systemic importance, relating to the trading volume and which is included in the category that measures the substitutability of services or of the financial infrastructure provided by a banking group. The revised methodology also included insurance activities in the indicators-based measurement approach used to assess the systemic importance of banking groups. Those changes to the methodology for assessing global systemically important banks should be reflected in Commission Delegated Regulation (EU) No 1222/2014. The data collection established in accordance with the revised methodology, which includes the trading volume indicator, will start in the first quarter of 2022. G-SIIs will therefore be identified on the basis of the revised framework for the first time in the last quarter of 2022. In order to align the application of the provisions of the revised methodology with the dates of application of the revised methodology, the provisions of this Regulation that reflect the changes in the revised methodology should apply from 1 December 2021. Directive (EU) 2019/878 enabled competent and designated authorities to use sound supervisory judgement to reallocate a global systemically important institution (G-SII) from a higher subcategory to a lower subcategory on the basis of the additional overall score that accounts for the specificities of the European banking union and the SRM within cross-border activity indicators. To mitigate the potential adverse effects of a sharp reduction in a G-SII’s allocated systemic importance, however, and in line with the revised methodology, the possibility for the relevant competent and designated authorities of reallocating a G-SII from a higher subcategory to a lower subcategory should be limited to a maximum decrease of one subcategory from the original subcategory allocation resulting from the initial G-SII overall score. Moreover, in order to ensure consistency with the views of the BCBS, any supervisory judgement leading to a reallocation of a G-SII to a lower subcategory should adequately take into account its views. Delegated Regulation (EU) No 1222/2014 should therefore be amended accordingly.
11/03 – CRD / CRR – Commission Delegated Regulation (EU) 2021/424 of 17 December 2019 amending Regulation (EU) no 575/2013 with regard to the alternative standardised approach for market risk has been published in the Official Journal
Official publication has been made of Commission Delegated Regulation 2021/424 amending Regulation 575/2013 of the European Parliament and of the Council with regard to the alternative standardised approach for market risk. Adopted more than one year ago (on 17 December 2019), this Delegated Regulation introduces into Regulation 575/2013 the technical specifications needed to make fully operational the alternative standardised approach laid down in Chapter 1a of Title IV of Part Three thereof. This Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 30 September 2021.
The City of London financial center will have to wait for its Brexit deal. While the EU and U.K. struck a landmark trade deal on Thursday, the agreement does not detail the relationship that will cover financial services. The trade accord includes only a commitment from both sides to aim for an agreement on a framework for regulatory cooperation in financial services by March. This leaves the financial industry on both sides of the Channel holding out for “equivalence” decisions that allow easier access to each other’s markets based on similar rules.
The UK has implemented the G20 commitment to improve over-the-counter derivatives markets by onshoring the MiFIR derivatives trading obligation (DTO) under the EU Withdrawal Act. The UK DTO applies to the same classes of derivatives as the EU DTO. Where firms that are subject to the UK DTO trade with, or on behalf of, EU clients that are subject to the EU DTO, they will be able to transact or execute those trades on EU venues providing certain requirements. This modification of the application of the UK DTO applies to UK firms, EU firms using the UK’s temporary permissions regime (TPR), and branches of overseas firms in the UK. Transactions concluded by an EEA Undertakings for the Collective Investment in Transferable Securities (UCITS) fund or an EEA alternative investment fund (AIF) are currently outside the scope of the UK DTO.
04/01 – ESMA withdraws the registrations of six UK-based credit rating agencies and four trade repositories
The ESMA, the supervisor of European Union (EU) credit rating agencies (CRAs) and trade repositories (TRs), has withdrawn the registrations of the following United Kingdom (UK) based CRAs: (i) AM Best Europe-Rating Services Ltd; (ii) DBRS Ratings Ltd; (iii) Fitch Ratings Ltd; (iv) Fitch Ratings CIS Ltd; (v) Moody’s Investors Service Ltd; (vi) the Economist Intelligence Unit Ltd. And the following UK-based TRs: (i) DTCC Derivatives Repository Plc; (ii) UnaVista Limited; (iii) CME Trade Repository Ltd; and (iv) ICE Trade Vault Europe Ltd. ESMA’s decisions follow the end of the transition period of the UK’s withdrawal from the EU, which occurred on 31 December 2020. The CRA Regulation and the EMIR, as well as the SFTR, require ESMA to withdraw the registration of a firm where it no longer meets the conditions under which it was registered, including being a legal person established in the EU.
05/01 – ESMA published financial instruments reference data after the end of the Brexit transition period (FIRDS)
On 6 January 2020, the ESMA published its first set of Financial Instruments Reference Data System (FIRDS) files following the end of the Brexit transition period. ESMA states that the FIRDS delta files contain information about: (i) termination of all UK financial instruments: (ISIN, MIC) records for MICs in the UK and which were still active have been terminated and their termination date has been set to 31 December 2020 at 22:59:59 UTC; (ii) updated Relevant Competent Authority (RCA) for all financial instruments which previously had GB as RCA and which will continue to be traded in the EU.
The Single Resolution Board (SRB) and the Bank of England continue to work closely together to ensure appropriate arrangements in place for effective cooperation on the management of the failure of cross border banks, should the need arise.
13/01 – ESMA reminds firms of the MiFID II rules on reverse solicitation27/10 – ESMA ADDS UK VENUES TO OPINIONS ON THIRD-COUNTRY TRADING VENUES
ESMA issued a Public Statement to remind firms of the MiFID II requirements on the provision of investments services to retail or professional clients by firms not established or situated in the EU. ESMA reminds firms that “where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client”. This is true “regardless of any contractual clause or disclaimer purporting to state, for example, that the third country firm will be deemed to respond to the exclusive initiative of the client”.
26/02 – Brexit – EU-UK trade and cooperation agreement: Council requests European Parliament’s consent
The Council has requested the European Parliament’s consent to its decision on the conclusion of: (i) the EU-UK trade and cooperation agreement and; (ii) a security of information agreement. Once the European Parliament has given its consent and once all 24 language versions of the agreements have been established as authentic and definitive, the Council will be in a position to adopt the decision on the conclusion of the agreements, allowing their entry into force. This will be the last step for the EU in the ratification of the agreements.
The update concerns ESMA’s previous statements that were issued in March and October 2019 as well as in October 2020, respectively. The latest update specifies the EU’s regulatory approach towards UK-based third country benchmarks as well as UK endorsed and recognised benchmarks. The October 2020 statement needed to be revised as the EU BMR transitional provision had been updated in the context of the recent BMR reform.
ESMA is issuing the statement to promote common supervisory practices among Member State competent authorities when exempting UK issuers from their Transparency directive requirements. The statement highlights that, from 1 January 2021, UK issuers may use the International Financial Reporting Standards, as endorsed by the EU, or as issued by the International Accounting Standards Board, amongst other accounting standards, when complying with their TD obligations for consolidated financial statements and individual financial statements of single entities. UK group issuers may also use UK GAAP when complying with their obligations for parent individual financial statements. In particular, when providing information on dividends computation and, where applicable, minimum capital requirements.
15/02 – Capital Markets Recovery Package: Council adopts first set of measures to help companies access funding
The Council today adopted targeted amendments to MiFID II and the prospectus regulation to facilitate the recapitalisation of EU companies on financial markets in the wake of the COVID-19 crisis. Together with adaptations to the EU’s securitisation framework, the measures form part of the Capital Markets Recovery Package, which aims to make it easier for capital markets to support economic recovery from the pandemic.
18/03 – European Commission launched a consultation on the feasibility assessment for a potential EU referral scheme
In the capital markets union action plan, the Commission committed to analysing the merits and feasibility of setting up a referral scheme to require banks (and other providers of funding) to direct small and medium enterprises whose funding application has been turned down to providers of alternative funding. The objective of this scheme will be to facilitate SMEs’ access to a wider set of funding options, including alternative funding options. The call for feedback aims at gathering evidence and feedback from stakeholders on whether there is potential for a referral scheme to help SMEs whose funding applications have been rejected. Consultation period : 12 March 2021 – extended to 30 April 2021.
27/01 – EU Commission Delegated Regulation (EU) 2021/70 postponed the date of the entry into force of CSDR settlement discipline
On 27 January 2021, there was published in the Official Journal of the EU, Commission Delegated Regulation (EU) 2021/70 of 23 October 2020 amending Delegated Regulation (EU) 2018/1229 concerning the regulatory technical standards on settlement discipline, as regards its entry into force. The Commission Delegated Regulation amends the text of Article 42 of Delegated Regulation (EU) 2018/1229 by inserting “This Regulation shall enter into force on 1 February 2022”.
The Commission will assess the functioning of the EU rules on CSDs, notably, the cross-border provision of services by CSDs, the handling of the relevant access requests and whether there are other substantive barriers to competition in relation to services subject to those rules, which could be insufficiently addressed. On that basis, the Commission may propose targeted amendments to current rules. Roadmap’s feedback period is: 8 March 2021 – 5 April 2021. EU Commission will propose a regulation for the second quarter 2021.
The revised ESMA Regulation (Article 16b(5)) specifies that ESMA transfers queries which interpret Union law to the European Commission (EC). The latest Q&As on the CSDR contain answers provided by the EC that relate to:
- The provision of CSD services in other Member States: (i) the first Q&A further clarifies that Article 23 of CSDR applies to all types of financial instruments, as defined under MIFID II, whether or not admitted to trading, or traded, on trading venues; (ii) the second Q&A clarifies that, for the purpose of Article 23(2) of CSDR, the “law under which the securities are constituted” should by default be the standard law of the issuance of the securities and/or, if determined by the issuer, the national law of the issuer; and
- The exemption from the application of cash penalties and the buy-in requirements for settlement fails relating to transactions involving CCPs: the third Q&A clarifies that only settlement fails relating to transactions for which a CCP interposes itself between the counterparties (i.e. transactions cleared by the concerned CCP) should be captured by the exemption under Article 7(11) of CSDR.
Regulators must press banks to remove obstacles for fintech firms lawfully accessing clients’ account data, the European Banking Authority said today. The EBA issued an opinion calling on banking watchdogs to crack down on any lenders and other account providers that are making life difficult for fintech competitors.
The Council today adopted conclusions on the EU’s cybersecurity strategy for the digital decade. This strategy was presented by the Commission and the high representative for foreign affairs in December 2020. It outlines the framework for EU action to protect EU citizens and businesses from cyber threats, promote secure information systems and protect a global, open, free and secure cyberspace. The conclusions note that cybersecurity is essential for building a resilient, green and digital Europe. They set as a key objective achieving strategic autonomy while preserving an open economy. This includes reinforcing the ability to make autonomous choices in the area of cybersecurity, with the aim to strengthen the EU’s digital leadership and strategic capacities. In its conclusions, the Council highlights a number of areas for action in the coming years. In order to ensure the development, implementation and monitoring of the proposals presented in the cybersecurity strategy, the Council encourages the Commission and the High Representative to establish a detailed implementation plan. The Council will also monitor the progress in the implementation of the conclusions through an action plan which will be regularly reviewed and updated.
On 2 October 2020 the Eurosystem published its “Report on a digital euro”. The report formed the basis for seeking wider views on the benefits and challenges of issuing a digital euro and on its possible design. The report was followed by the “Public consultation on a digital euro”, which was launched on 12 October 2020 and ran until 12 January 2021. This report sets out the results of the analyses of the 8,221 responses submitted by participants in the public consultation. It will serve as important input for the ECB’s Governing Council when it decides in mid-2021 whether to launch a formal investigation phase in view of a possible launch of a digital euro.
The Commodity Futures Trading Commission (CFTC) and ESMA announced the signing of a new Memorandum of Understanding (MOU) regarding cooperation and the exchange of information with respect to certain registered derivatives clearing organisations established in the United States that are CCPs recognised by ESMA under EMIR. Through the MOU, ESMA and the CFTC express their desire for enhanced cooperation as to the larger U.S. CCPs operating in the European Union with provisions that expand upon the collaboration set out in the 2016 CFTC – ESMA MOU related to recognised CCPs. The MOU reflects ESMA’s and the CFTC’s commitment to strengthening their mutual cooperative relationship, which has continued to flourish over the last years.
15/01 – EC prepares an initiative for a Delegated Act on the extension of the exemption from the clearing obligation for pension scheme arrangements
Regulation 648/2012 provides for a temporary exemption from the central clearing obligation for pension scheme arrangements, considering the potential impact of this requirement on the retirement income of pensioners. According to the Regulation, the European Commission may extend the temporary exemption twice, each time by one year maximum, through a delegated act. This initiative is in preparation.
15/01 – EC launched two initiatives on equivalence of regulatory framework for non-EU central counterparties
With this initiative, the Commission determines that the legal and supervisory arrangements applicable to CCPs in a non-EU country are equivalent to those laid down in the European Markets Infrastructure Regulation. On that basis, CCPs in that non-EU country may apply to the European Securities and Markets Authority and be recognised to offer central clearing services in the EU. These initiatives to adopt implementing decisions are in preparation.
22/01 – Regulation (EU) 2021/23 of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending several regulations has been published
Published on January 22, 2021, this Regulation provides rules and procedures relating to the recovery and resolution of central counterparties (CCPs) authorised in accordance with Regulation (EU) No 648/2012 and rules relating to arrangements with third countries in the field of recovery and resolution of CCPs. This Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union, February 11, 2021.
26/01 – Commission Delegated Regulation with regard to the content of the file to be submitted by the investigation officer to ESMA, the right to be heard with regard to interim decisions and the lodging of fines and periodic penalty payments published
In order to adapt the existing rule of procedures to take into account changes introduced by EMIR REFIT, the European Commission has adopted a Delegated Regulation that amends Delegated Regulation (EU) No 667/2014 on the rules of procedures for penalties imposed on trade repositories by ESMA as foreseen in Article 65(7) of the European Markets Infrastructure Regulation.
Article 1 sets out the following changes to Delegated Regulation (EU) No 667/2014:
- The complete file to be submitted to ESMA by the investigation officer, including his or her statement of findings and a copy of the statement of findings on the basis of which the person subject to investigation has been heard.
- The procedure framing the right to be heard by ESMA in the case of interim decisions.
- Where multiple fines or periodic penalty payments are collected by ESMA in parallel, the accounting officer of ESMA shall ensure that they are lodged to different accounts or sub-accounts.
Article 2 sets out the date of entry into force of the Delegated Regulation. It enters into force on the day following that of its publication in the Official Journal of the European Union.
On January 28, 2021, the European Commission adopted an implementing decision (EU) 2021/85 on equivalence decision determining that the United States Securities and Exchange Commission (SEC) regime for US central counterparties (CCPs) is equivalent to EU rules. The equivalence decision determines that the legal and supervisory arrangements applicable to US CCPs registered with the SEC can be considered to be equivalent to requirements laid down in the European Markets Infrastructure Regulation. The equivalence decision applies only to SEC-regulated ‘covered clearing agencies’. The equivalence decision is also conditional. In order to be allowed to offer services in the EU, US CCPs will have to have rules in place with respect to certain risk management requirements (i.e. liquidation periods and anti-procyclicality measures). This Decision will enter into force on February 17, 2021.
26/01 – Commission Delegated Regulation supplementing EMIR with regard to rules of procedure for penalties imposed on third-country CCPs or related third parties by ESMA
On 26 January 2021, the European Commission adopted a Delegated Regulation that specifies the rules of procedure regarding fines and periodic payments to be imposed by ESMA on third country central counterparties (CCPs) or related third parties to whom those CCPs have outsourced operational functions or activities subject to ESMA’s investigation and enforcement proceedings, including rules on the right of defence and limitation periods. The Delegated Regulation enters into force on the day following that of its publication in the Official Journal of the EU.
The procedural rules for taking supervisory measures and imposing fines are laid down in Article 25i of EMIR. Article 25i(7) of EMIR empowers the Commission to adopt delegated acts to specify further the rules of procedure for the power to impose penalties, including provisions on the rights of the defence, temporal provisions, and the collection of fines or periodic penalty payments, and the limitation periods for the imposition and enforcement of penalties. The Delegated Regulation is to be adopted in accordance with Article 82 of EMIR and Article 290 of the Treaty on the Functioning of the European Union.
ESMA has updated its Q&A on practical questions regarding reporting issues under EMIR. The updated Trade Repository (TR) Q&A 3b (“Procedure for terminating ‘dead trades’ by TRs”) explains how to report the direction of derivatives in specific cases that are described. A new Q&A for Trade Repositories clarifies the steps to be taken for the due termination of derivatives when the reporting counterparty ceases to exist. It also specifies how to deal with non-terminated reports of inactive (dissolved) counterparties to ensure that accurate information is provided to the authorities.
03/02 – EU commission plans an initiative on derivatives trading – recognising US legal and supervisory system as equivalent to EU system
This initiative concerns over-the-counter (OTC) derivative transactions between an entity in the EU and an entity in the United States. These are transactions not cleared by a central counterparty, which are supervised by the US prudential regulators. The initiative aims to ensure there are no conflicting or duplicating requirements in the treatment of these cross-border transactions. The Commission planned to adopt an implementing decision for the first quarter 2021.
17/02 – EMIR – Commission Delegated Regulation (EU) 2021/236 of 21 December 2020 amending technical standards outlined in Delegated Regulation (EU) 2016/2251 published in the Official Journal
This delegated regulation postpones the deadline for the implementation of the initial margin requirements for non-centrally cleared derivatives by an extra year for counterparties with an aggregate average notional amount of non-centrally cleared derivatives between EUR 8 billion and EUR 50 billion. Delegated Regulation (EU) 2016/2251 provides also for a deferred date of application of the bilateral margin requirements for non-centrally cleared OTC derivative contracts concluded between counterparties which are part of the same group and where one counterparty is established in a third country and the other counterparty is established in the Union. That deferred date of application was necessary to ensure that such OTC derivative contracts were not subject to the bilateral margin requirements before the adoption of an implementing act pursuant to Article 13(2) of Regulation (EU) No 648/2012. Despite the efforts invested to analyse third country jurisdictions in relation to which any such implementing act may be warranted, to date, only two such implementing acts have been adopted pursuant to Article 13(2) of Regulation (EU) No 648/2012 in relation to non-centrally cleared OTC derivative transactions. The application of the bilateral margin requirements for non-centrally cleared OTC derivative intragroup contracts should therefore be further deferred to avoid the unintended detrimental economic impact that the expiry of that exemption would have on Union firms.
The deferred date takes effect from 30 June 2022 where no equivalence decision has been adopted pursuant to Article 13(2) of Regulation (EU) No 648/2012 for the purposes of Article 11(3) of that Regulation in respect of the relevant third.
17/02 – EMIR – Commission Delegated Regulation (EU) 2021/237 of 21 December 2020 amending delegated regulations as regards the date at which the clearing obligation takes effect for certain types of contracts has been published in the Official Journal
This Delegated regulation (EU) 2021/237 of 21 December 2020 has been published in the Official Journal of February 17, 2021. It amends regulatory technical standards laid down in Delegated Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 as regards the date at which the clearing obligation takes effect for certain types of contracts.
17/02 – EMIR – Commission Delegated Regulation (EU) 2021/236 of 21 December 2020 amending technical standards laid down in Delegated Regulation (EU) 2016/2251 as regards to the timing of when certain risk management procedures will start to apply for the purpose of the exchange of collateral has been published in the Official Journal
This delegated regulation postpones the deadline for the implementation of the initial margin requirements for non-centrally cleared derivatives by an extra year for counterparties with an aggregate average notional amount of non-centrally cleared derivatives between EUR 8 billion and EUR 50 billion. Delegated Regulation (EU) 2016/2251 provides also for a deferred date of application of the bilateral margin requirements for non-centrally cleared OTC derivative contracts concluded between counterparties which are part of the same group and where one counterparty is established in a third country and the other counterparty is established in the Union. That deferred date of application was necessary to ensure that such OTC derivative contracts were not subject to the bilateral margin requirements before the adoption of an implementing act pursuant to Article 13(2) of Regulation (EU) No 648/2012. Despite the efforts invested to analyse third country jurisdictions in relation to which any such implementing act may be warranted, to date, only two such implementing acts have been adopted pursuant to Article 13(2) of Regulation (EU) No 648/2012 in relation to non-centrally cleared OTC derivative transactions. The application of the bilateral margin requirements for non-centrally cleared OTC derivative intragroup contracts should therefore be further deferred to avoid the unintended detrimental economic impact that the expiry of that exemption would have on Union firms. The deferred date takes effect from 30 June 2022 where no equivalence decision has been adopted pursuant to Article 13(2) of Regulation (EU) No 648/2012 for the purposes of Article 11(3) of that Regulation in respect of the relevant third.
ESMA published the final report on Guidelines aimed at assisting competent authorities in the application of EMIR provisions that deal with the review and evaluation of CCPs. These guidelines address common procedures and methodologies for the review of arrangements, strategies, processes and mechanisms implemented by CCPs.
10/03 – EU Commission consults on Draft Delegated Regulation supplementing EMIR specifying the conditions when commercial terms of central clearing are FRANDT
The objective of the draft delegated act is to specify the conditions under which commercial terms for clearing services of clearing service providers are to be considered to be FRANDT (fair, reasonable, non-discriminatory and transparent). The Annex to the draft delegated act sets out the requirements that contractual terms must meet in order to be considered as FRANDT: the transparency of the on-boarding process; the form for a request for proposal; disclosure of commercial terms; risk control assessment; the obligation to lay down the contractual terms in writing; fees, and pass-on costs; the refusal of clearing orders, suspension of clearing services, liquidation or close-out of client positions, the termination of contracts.. When finalised the draft delegated act will enter into force on the day following that of its publication in the Official Journal of the EU (OJ). It shall apply from 3 months following its publication in the OJ.
16/03 – EU Commission launches a consultation on pension scheme arrangements – exemption from clearing obligation
On 16 March 2021, the European Commission issued a consultation on a draft Delegated Regulation extending for a year the temporary exemption from the central clearing obligation for pension scheme arrangements (PSAs). EMIR provides for a temporary exemption from the clearing obligation for PSAs meeting certain criteria. This transitional period is set out under Article 89(1) of EMIR and provides further time for CCPs, PSAs and clearing members to develop viable technical solutions which would allow PSAs to meet the cash variation margin calls of CCPs. The temporary exemption has previously been extended given that no viable technical solution has emerged. The EMIR REFIT Regulation prolonged the exemption until 18 June 2021. Article 85(2) of EMIR provides that it is possible to further extend the temporary exemption by two years maximum through two Commission delegated acts, while the ultimate aim of EMIR remains central clearing for PSAs. In the draft Delegated Regulation the Commission is proposing to prolong the existing exemption by an additional year.
The Joint Q&As on Bilateral Margining clarify different aspects regarding the bilateral margin regime under EMIR: (i) the relief covered by a partial intragroup exemption from bilateral margin requirements; (ii) the procedure to grant intragroup exemptions from bilateral margin requirements between a financial counterparty and a non-financial counterparty that are based in different Member States; (iii) and the exemption regime from bilateral margin requirements for derivatives entered into in relation to covered bonds.
26/03 – Commission Delegated Regulation (EU) 2021/529 of 18 December 2020 as regards adjustment of liquidity thresholds and trade percentiles has been published in the Official Journal
Commission Delegated Regulation (EU) 2017/583 sets out the transparency requirements applicable to bonds, structured finance products, emission allowances and derivatives. In order to ensure a smooth implementation of those requirements, this Delegated Regulation introduced an annual phase-in of application of certain transparency thresholds over the course of four years, starting from 2019. This phase-in allows gradual broadening of the application of corresponding transparency obligations. Taking into account the assessment undertaken by ESMA it is now appropriate to move to a new stage (S2) for determining bonds for which there is a liquid market and for the size specific to the instrument for bonds. The move to stage S2 should increase the level of transparency available in the bond market without a negative impact on liquidity. The Delegated Regulation (EU) 2017/583 is therefore amended accordingly. This regulation will enter into force on April 15, 2021.
ESMA has updated the European Markets Infrastructure Regulation (EMIR) validation rules relating to the reporting of Variation margin received. From 30 April onwards trade repositories (TRs) should not reject derivatives reports where field “Variation margin received” (1.30) is left blank for derivatives that are reported by the reporting counterparty as “Uncollateralised”.
ESMA has updated its Questions and Answers document on practical questions regarding reporting issues under the EMIR. The updated Trade Repository (TR) Q&A 51 provides further clarifications on two aspects related to intragroup transactions (IGT) reporting exemption: (i) reporting of details of derivatives when the IGT reporting exemption ceases to be valid; and (ii) location of parent undertaking for purposes of the IGT reporting exemption. The answer to this question is provided by the European Commission in accordance with Article 16b(5) of the ESMA Regulation.
09/04 – CCPs – ESMA publishes draft Regulatory Technical Standards on changes to CCPs’ activities and models
ESMA published its Final Report containing draft regulatory technical standards (RTS) relating to changes to central counterparty (CCP) services and activities, as well as models and parameters under the EMIR. EMIR requires a CCP wishing to extend its business to additional services or activities that are not covered by the initial authorisation, to submit a request for extension of authorisation to its competent authority (Article 15). Prior to making any significant change to its risk models or parameters, a CCP must also obtain validation from its competent authority and ESMA (Article 49). The Draft RTS specify: (i) the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation; (ii) the conditions under which changes to the CCP’s models and parameters are significant and therefore require a validation; and (iii) the procedures for consulting the CCP college on whether those conditions are met. The European System of Central Bank, the European Banking Authority and other relevant authorities have contributed to the drafting of the RTS.
19/01 – Commission takes further steps to foster the openness, strength and resilience of Europe’s economic and financial system
This proposed approach is based on three mutually reinforcing pillars: (i) promoting a stronger international role of the euro and promoting sustainable finance is also an opportunity to develop EU financial markets into a global ‘green finance’ hub, bolstering the euro as the default currency for sustainable financial products; (ii) further developing EU financial market infrastructures and improving their resilience, including towards the extraterritorial application of sanctions by third countries, and; (iii) further promoting the uniform implementation and enforcement of the EU’s own sanctions.
The EU is working to turn its EUR 750 billion recovery package into action. The Council today adopted a regulation establishing the Recovery and Resilience Facility, which lies at the heart of the EU’s recovery plan. It will make EUR 672.5 billion in grants and loans available for public investment and reforms in the 27 member states to help them address the impact of the COVID-19 pandemic, to foster the green and digital transitions and to build resilient and inclusive societies. Member states will receive support from the facility on the basis of their national recovery and resilience plans, which are currently under preparation.
The European Securities and Markets Authority today pressed for tougher oversight of financial reporting following the Wirecard scandal, in a letter to the European Commission. The Paris-based authority called for changes to EU rules to ensure national authorities have consistent powers to request information from listed companies and remedy accounting errors. This would include ensuring regulators can demand that companies correct a financial report or require a second audit of the books.
11/03 – Supervision – Commission launches targeted consultation to assess the functioning of the ESAs
Financial supervision is mainly carried out by the national competent authorities and the role of ESAs is to ensure supervisory convergence. This consultation will take stock of supervisory practices among national supervisors, supervisory convergence and how the EU’s single rulebook works in practice. It will seek targeted views on certain aspects related to the 2019 ESAs review, such as amendments of existing tools (e.g. peer reviews), conferred new tasks (e.g. establishing common Union strategic supervisory priorities) or governance changes. The results of this consultation will feed into a report reviewing the ESAs, which is required under the ESAs founding Regulations, and was also outlined in the September 2020 Capital Markets Union Action Plan. This report aims to contribute to a wider debate on supervisory convergence and the functioning of the EU single rulebook for financial services. Consultation period: 12 March 2021 – 21 May 2021.
MIFID 2 / MIFIR
29/01 – ESMA launched a consultation paper on draft guidelines on certain aspects of the MIFID II appropriateness and execution-only requirements
On 29 January 2021, the ESMA launched a consultation paper on draft guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements. The purpose of the draft guidelines is to enhance clarity and foster convergence in the application of certain aspects of the MiFID II appropriateness and execution-only requirements. The deadline for comments on the consultation paper is 29 April 2021. ESMA intends to issue the final guidelines in Q3 2021.
ESMA is launching a common supervisory action with NCAs on the application of MiFID II product governance rules across the EU. The CSA will be conducted during 2021. This action will allow ESMA and the NCAs to assess the progress made by manufacturers and distributors of financial products in the application of these key requirements. ESMA believes this initiative, and the related sharing of practices across NCAs, will help ensure consistent implementation and application of EU rules and enhance the protection of investors in line with ESMA’s objectives.
15/02 – Capital Markets Recovery Package: Council adopts first set of measures to help companies access funding
The Council today adopted targeted amendments to MiFID II and the Prospectus regulation to facilitate the recapitalisation of EU companies on financial markets in the wake of the COVID-19 crisis. Together with adaptations to the EU’s securitisation framework, the package aims to make it easier for capital markets to support economic recovery from the pandemic.
17/02 – MIFID / MIFIR – ESMA highlights risks to retail investors of social media driven share trading
ESMA has released a statement to highlight to retail investors the risks connected with trading decisions based exclusively on exchanges of views, informal recommendations and sharing of trading intentions through social networks and unregulated online platforms. ESMA and the National Competent Authorities will continue analysing market events and consider adopting further initiatives aimed at preserving investors and market integrity as appropriate.
On 26 February 2021, the Directive (EU) 2021/338 of the European Parliament and of the Council of 16 February 2021 (“MiFID II quick-fix”) has been published in the EU Official Journal. This Directive will enter into force the following day of its publication, on February 27, 2021.
On 19 March 2021, ESMA issued a public statement regarding its supervisory approach to position limits for commodity derivatives. To help the recovery from the COVID-19 pandemic, Directive (EU) 2021/338 substantially reduces the scope of commodity derivatives subject to position limits. Position limits will only continue to apply to agricultural commodity derivatives and critical or significant commodity contracts. An exemption is also introduced for positions held by financial and non-financial counterparties for positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue. The new provisions will apply early in 2022. The opinion notes that ESMA would see merit in already having in place a more favourable environment for the development of non-significant commodity derivatives that would no longer be subject to position limits but ESMA cannot disapply EU law. However, considering the upcoming legislative change and other potential impacts on existing position limits, ESMA expects Member State national competent authorities not to prioritise supervisory actions towards: (i) entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots; and (ii) positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as referred to in point (c) of the fourth subparagraph of Article 2(4) of MiFID II.
25/03 – EIOPA consults on revised guidelines on the use of the legal entity identifier (consultation)
EIOPA has published a consultation paper on revised guidelines on the use of the legal entity identifier (LEI). EIOPA intends to revise its existing guidelines, published in October 2014, on the use of the LEI as a unique identification code for the supervision of the insurance and occupational retirement provision sectors. The deadline for responses is 30 June 2021.
26/03 – Commission Delegated Regulation (EU) 2021/527 of 15 December 2020 amending Commission Delegated Regulation (EU) 2017/565 as regards the thresholds for weekly position reporting has been published in the Official Journal
Commission Delegated Regulation (EU) 2017/565 (2) establishes, in its Article 83, the minimum thresholds referred to in the second subparagraph of Article 58(1) of Directive 2014/65/EU, above which trading venues are required to make public weekly reports as referred to in Article 58(1)(a) of that Directive. The minimum threshold regarding the size of open positions should be amended to provide transparency to stakeholders on a broader range of commodity derivatives. The publication of weekly position reports should no longer depend on the size of open interest in comparison with the size of deliverable supply but should instead be based on simpler criteria, namely the size of open interest in that commodity derivative. As regards the open interest threshold, weekly position reports should be published where the total combined open interest in spot contracts and other months’ contracts is equal to, or exceeds, 10 000 lots, so as to ensure that there is sufficient interest in a commodity derivative to justify the publication of weekly position reports.
In order to reduce the risk of a breach of confidentiality concerning position holders, for contracts where a category of persons includes fewer than five active position holders, the weekly position report published should include no information regarding that category of persons. Delegated Regulation (EU) 2017/565 should therefore be amended accordingly. It entered into force on March 29, 2021.
The technical advice addresses the application of administrative and criminal sanctions, and particularly the need to further harmonise the administrative sanctions set out for infringements of MiFID II/MiFIR requirements. ESMA’s technical advice includes proposals to: (i) amend the MIFID II requirements for National Competent Authorities (NCAs) to disclose and report information on sanctions and measures; (ii) amend the MIFID II requirement for NCAs to liaise with judicial authorities to gather information on criminal sanctions; (iii) include settlement powers among the range of sanctions and measures of Member States’ national NCAs to increase the efficiency of their enforcement proceedings; and (iv) amend the current requirements on MiFID II precautionary measures.
Specifically, ESMA has added one new Q&A concerning one of the conditions specifying when an inducement can be considered as designed to enhance the quality of the relevant service to the client. The new Q&A provides guidance on the application of three important elements contained in Article 11(2)(a) of the MiFID II Delegated Directive, notably the condition that the inducement is justified by the provision of: (i) an additional or higher-level service, (ii) to the relevant client, (iii) proportional to the level of inducements received.
ESMA published the Final Report on the review of transaction and reference data reporting obligations under MiFIR. The final report contains recommendations and possible legislative amendments to MiFID II/MiFIR with a view to simplifying the current reporting regimes whilst ensuring quality and usability of the reported data. ESMA’s recommendations are particularly relevant for trading venues, systematic internalisers, investment firms, data reporting services providers, and asset management companies.
ESMA issued a statement concerning the temporary suspension of the obligation on execution venues to make available to the public data related to the quality of execution of transactions on their venues. The statement notes that the legislative aim was to suspend the best execution reports for two years as of the entry into force of the Directive (EU) 2021/3383. ESMA recognises the aim of the suspension and the specific issues identified in the Directive (EU) 2021/3383 with regard to the usefulness of RTS 27 reports. ESMA therefore expects Member State competent authorities not to prioritise supervisory actions towards execution venues relating to the obligation to publish the RTS 27 reports until the date on which the national transposition measures of the Directive (EU) 2021/3383 postpone that obligation in national law.
On 6 April 2021, ESMA updated its Q&As on market structures issues under MiFID II and MiFIR.
ESMA has introduced changes to one of its Q&As on tick sizes to reflect the amendment introduced in Article 49(1) of MiFID II, which excludes Large in Scale transactions from the mandatory tick size regime.
ESMA has published a final report on the functioning of the regime for SME growth markets (GMs) under MiFID2. In May 2020, ESMA launched a consultation which sought views on, among other things, proposed initiatives to incentivise the emergence of multilateral trading facilities as SME GMs and to improve the attractiveness of the SME GM regime. The final report sets out the findings from this consultation and ESMA’s recommendations to the EU Commission. Overall, ESMA concludes that the EU SME GM regime has been relatively successful, with seventeen MTFs registering as SME GMs to date. However there is still a need for further incentives to encourage SMEs to access capital markets. It calls on the EU Commission to consider making targeted amendments to the SME GM regime in the MiFID2 framework. The report has been submitted to the EU Commission, and is expected to be used to inform its decisions on further legislative proposals on the MiFID2 SME GM regime.
ESMA has published its Final Report on the functioning of Organised Trading Facilities (OTFs). The report contains recommendations and possible amendments to MiFID II/MiFIR with a view to reducing the level of complexity for market participants and making the legal framework more effective.
ESMA launched a consultation on potential reforms of the EU Money Market Funds Regulation. ESMA aims to review the stress experienced by MMFs during the March 2020 crisis and assess the roles played by markets, investors and regulation, and proposes potential reforms. ESMA sets out four types of potential reforms for MMFs: (i) reforms targeting the liability side of MMFs; (ii) reforms targeting the asset side of MMFs; (iii) reforms targeting both the liability and asset side of MMFs; and (iv) reforms that are external to MMFs themselves. In addition, ESMA is also gathering feedback from stakeholders on other potential changes, particularly linked to ratings, disclosure and stress testing.
ESAs have submitted to the European Commission the draft RTS on amendments to the PRIIPs KID (Delegated Regulation (EU) 2017/653 of 8 March 2017). Following a request from the EU in December 2020, EIOPA’s Board of Supervisors further analysed the draft RTS which was adopted by a qualified majority of EIOPA’s Board. While some national competent authorities (NCAs) on EIOPA’s Board continued to express reservations on the draft RTS, they supported the proposal following reassurances from the EU as to a proposed broader review of PRIIPs Regulation to thoroughly examine the application of the PRIIPs framework.
ESMA has updated its Q&A on the Prospectus Regulation with six new Q&As. The Q&As provide clarification on the following aspects: (i) order of information in a prospectus; (ii) financial information which only covers short periods; (iii) use of the same prospectus to make several offers; (iv) disclosure requirements concerning statements prepared by an expert; (v) application of an exemption in Article 1(5) of the Prospectus Regulation; and (vi) which disclosure annexes should be applied when drawing up a prospectus.
ESMA updated its Q&As on the Prospectus Regulation with four new Q&As on the following aspects: (i) the application of the exemption in Article 1(5)(b) PR in a situation concerning non-transferable securities; (ii) the application of the PR where shares can be exchanged for global depositary receipts (and vice versa); (iii) dissemination of amended advertisements; and (iv) the status of transferable securities.
ESMA has published 4 new Q&As and modified 11 existing Q&As. ESMA also updated reporting instructions and an XML schema for the templates set out in the technical standards on disclosure requirements. The new Q&As include (i) instructions on how to report split and merged underlying exposures; and (ii) revised instructions on how to report income fields for buy-to-let residential real estate mortgages.
The purpose of the Joint Opinion is to facilitate the understanding of certain Securitisation Regulation (SECR) provisions in cases where third-country entities become parties to a securitisation. The Joint Opinion aims to clarify the potential obligations of those third-country parties, as well as related compliance aspects of a transaction under SECR, and is intended to help improve the functioning of EU securitisation markets. The Joint Opinion recommends that difficulties should be addressed, where possible, through interpretative guidance from the European Commission. The ESAs also invite the European Commission to undertake a comprehensive review of the SECR jurisdictional scope framework as part of the upcoming overall reform of this Regulation.
The Q&As clarify topics in relation to the application of the Securitisation Regulation to help market participants comply with their obligations and to foster cross-sectoral consistency in the implementation of the securitisation requirements in the EU. In particular, the Q&As clarify: (i) the content and the format of the information of a securitisation transaction that should be disclosed by the originator, sponsor and SSPE; (ii) the transaction documentation of a Simple, Transparent and Standardised (STS) securitisation that should be made publicly available to facilitate investors’ compliance with its due diligence requirements; and (iii) the type of STS certification services that can be provided by Third Parties Verifiers to the securitisation parties. The ESAs will continue to develop these Q&As on cross-sectoral aspects of the Securitisation Regulation and update them where required.
SFD / FCD
The European Commission launches two related consultations seeking input on rules concerning settlement finality, and financial collateral arrangements. The answers to these consultations will feed into a Commission Report to the European Parliament and Council. The current review covers a variety of issues that have come up since the last review of the settlement finality directive (SFD) and the closely related financial collateral directive (FCD), back in 2008 and 2009. This framework contributes to the integration and cost-efficiency of European financial markets. Harmonised collateral rules reduce losses and encourage cross-border business and competitiveness The consultation is open until 30 April 2021.
ESMA has updated its Q&A related to reporting under SFTR. The Q&As were updated to clarify:
- Reporting of events that were not duly reported on time
- Updates to records of outstanding SFTs by the Trade Repositories based on reports made by the counterparties
- Operational aspects concerning the reporting by financial counterparties on behalf of small non-financial counterparties pursuant to the Article 4(3) of SFTR.
The updated set of Q&A complements ESMA’s guidance on reporting under SFTR.
On 6 April 2021, ESMA updated its Q&As on reporting under the Securities Financing Transactions Regulation. The updated Q&As complement ESMA’s guidance on reporting under the SFTR. The Q&As were updated to simplify reporting of SFTs when an external portfolio manager is used. It should also help investors and other market participants by providing clarity on SFTR requirements.
On 6 April 2021, ESMA published its final report and guidelines on reporting periodic information and material changes by trade repositories (TRs) supervised under EMIR and SFTR. The guidelines set out the information that should be submitted by TRs to facilitate ESMA’s ongoing supervision of TRs on a consistent basis. The guidelines are intended to streamline the periodic aspect of the information collection process, ensuring that it is fully aligned with ESMA’s supervision and its risk assessment processes. The guidelines clarify the format and frequency of the different categories of information which ESMA expects to receive in its role as supervisor of TRs registered in accordance with EMIR and/or SFTR and, hence, clarify the respective obligations of TRs in accordance with Article 55(4) of EMIR and Article 5(4) of the SFTR. The final report summarises the feedback ESMA received to its earlier consultation on the guidelines. The guidelines will apply from 30 June 2021. All periodic information items that have annual frequency and a reporting deadline of 31 January should, in the first year, be submitted by 30 June 2021.
ESMA published an updated statement on the implementation of LEI requirements for third-country issuers under SFTR reporting regime. ESMA maintains its position regarding third-country issuer LEI reporting included in its statement published on 6 January 2020 (ESMA74-362-388) until 10 October 2022, at the latest. ESMA expects that during this period trade repositories would not reject SFT reports of securities without a third-country issuer LEI which are lent, borrowed or provided as collateral in an SFT. During this period ESMA would also expect counterparties, as well as the other entities participating in SFTs, such as agent lenders and tri-party agents that lend, borrow or use as collateral securities issued by third-country entities that do not have an LEI, to liaise with those issuers with a view to ensuring that they are aware of the requirements under SFTR. This would further facilitate the use of their securities by the counterparties subject to SFTR reporting requirements. ESMA will give advance notice to market participants regarding its position on third-country issuer LEI reporting ahead of 10 October 2022.
ESMA has decided not to renew its decision to require holders of net short positions in shares traded on an EU regulated market, to notify the relevant national competent authority (NCA) if the position reaches, exceeds or falls below 0.1% of the issued share capital. The measure, which has applied since 16 March 2020, will expire on 19 March 2021. ESMA’s view is that with GDP forecasts showing moderate optimism for recovery, volatility decreasing and the main EU stock indices close to pre-pandemic levels, the current situation in financial markets no longer resembles the emergency situation required by the Short Selling Regulation to maintain the measure. The overall level of net short positions is decreasing across the EU, reducing the risk that selling pressures could initiate or exacerbate potential negative developments connected with the evolution of the pandemic.
In a letter dated 7 January 2021, the three Europeans Authorities (ESMA, EBA, EIOPA) have sent a list of important interpretive questions to the EU Commission regarding the application of the SFDR regulation, that will be applicable on March 10, 2021. The questions are related to: (i) the application of SFDR to non-EU Alternative Investment Fund Managers (AIFMs) and registered AIFMs; (ii) application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group; (iii) the meaning of “promotion” in the context of products promoting environmental or social characteristics; (iv) the application of Article 9 of SFDR; and (v) the application of SFDR product rules to portfolios and dedicated funds.
20/01 – EC consults on the establishment of a European Single Access Point (ESAP) for financial and non-financial information publicly disclosed by companies
The purpose of this targeted questionnaire is to seek general and technical views on the way to establish a European single access point (ESAP) for companies’ financial and sustainable investment-related information made public pursuant to EU legislation. The establishment of the ESAP is the first action in the Commission’s new action plan on the capital markets union (CMU). The EU legislation in the financial services area requires companies to publish several hundreds of documents, particulars and datasets in order to increase the transparency and reduce asymmetry of information. These datasets may have regard to e.g. an entity’s financial performance, environmental, social or governance matters, products and services provided. This consultation is opened until March 3, 2021.
The European Central Bank (ECB) has decided to set up a climate change centre to bring together the work on climate issues in different parts of the bank. This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and coordination. “Climate change affects all of our policy areas,” said ECB President Christine Lagarde. “The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves.”
ESMA has written to the EC sharing its views on the main challenges in the area of ESG ratings and assessment tools. ESMA highlights the need to match the growth in demand for these products with appropriate regulatory requirements to ensure their quality and reliability. ESMA identifies the following key points for consideration:
- The market for ESG ratings and other assessment tools is currently unregulated and unsupervised. When combined with increasing regulatory demands for consideration of ESG information, there are increased risks of greenwashing, capital misallocation and products mis-selling.
- There should be a common definition of ESG ratings that covers the broad spectrum of possible ESG assessments currently on offer. This will help future-proof any regulatory framework and mitigate against possible obsolescence.
- The supervisory and regulatory regime should be adapted to the current market structure and accommodate both large multi-national providers who may be subject to existing regulatory frameworks, as well as smaller entities.
ESG rating providers can be part of larger groups providing services such as green bond certification and credit ratings. On the other hand, smaller players would also benefit from having access to an EU-wide regime. Given this overlap and to benefit from economies of scale in supervision ESMA is ready to support possible future supervisory responsibilities in this area.
04/02 – The three European Supervisory Authorities publish final report and draft RTS on disclosures under SFDR
The Joint Committee of the ESAs delivered to the European Commission the Final Report, including the draft RTS, on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR). The proposed RTS aim to strengthen protection for end-investors by improving ESG disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products. This will help to respond to investor demands for sustainable products and reduce the risk of greenwashing.
The European Commission published its adaptation strategy to better prepare the bloc to manage the impacts of climate change. Across Europe, policymakers are scrambling to come up with financing and other measures to deal with record temperatures and the impact of worsening storms, floods and droughts on agriculture, transport and power infrastructure, as well as insurance.
IOSCO has published a press release on its future work in relation to improving the sustainability-related disclosures by companies and asset managers. IOSCO identified three priority areas: (i) encouraging globally consistent standard; (ii) promoting comparable metrics and narratives; and (iii) coordinating across approaches.
25/02 – SFDR – ESAs issue recommendations on the application of the regulation on sustainability-related disclosures
The three European Supervisory Authorities (ESAs) have published a joint supervisory statement on the effective and consistent application and national supervision of the Regulation on sustainability-related disclosures in the financial services sector (SFDR). The statement aims to achieve an effective and consistent application and national supervision of the SFDR.
ESMA has published its Final Report on advice under Article 8 of the Taxonomy Regulation, which covers the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD).
The EBA published a consultation paper on draft ITS on Pillar 3 disclosures on ESG risks. The draft ITS put forward comparable disclosures that show how climate change may exacerbate other risks within institutions’ balance sheets, how institutions are mitigating those risks, and their green asset ratio on exposures financing taxonomy-aligned activities, such as those consistent with the Paris agreement goals. Deadline for the submission of comments is 1 June 2021.
01/03 – EBA advises the commission on KPIs for transparency on institutions’ environmentally sustainable activities, including a green asset ratio
The EBA published an Opinion in response to the Commission’s call for advice on KPIs and related methodology for the disclosure by credit institutions and by investment firms of information on how and to what extent their activities qualify as environmentally sustainable in accordance with the EU Taxonomy. In the advice, the EBA underlines the importance of the green asset ratio, supported by other KPIs, as a key means to understand how institutions are financing sustainable activities and meeting the Paris agreement targets.
These reports, which were prepared at the request of the Commission following an invitation by the Council, are an important step in the development of corporate sustainability reporting across the EU. Both reports recognise the importance of coordinating the development of EU sustainability reporting standards with existing and emerging global initiatives. EU sustainability standards are necessary to meet the political ambition and urgent timetable of the European Green Deal. They are also necessary to ensure consistency of reporting rules at the heart of the EU’s sustainable finance agenda, especially the existing Sustainable Finance Disclosure Regulation, the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, as well as with the requirements of forthcoming legislation on sustainable corporate governance and due diligence. The Commission will carefully consider these reports as it prepares its proposal to strengthen the Directive, which is planned for April.
10/03 – France and US to work on common green finance rules
France and the United States will work together to harmonise rules defining green investments, France’s Finance Minister Bruno Le Maire said today after a lunch with U.S. climate envoy John Kerry. “I proposed to John Kerry to have an identical taxonomy between the United States and Europe,” Le Maire said during a joint press conference with Kerry, in which he announced the creation of a joint working group on green finance and taxonomy.
17/03 – SFDR – ESAs launch a consultation setting out the proposed RTS on content and presentation of disclosures pursuant to article 8(4), 9(6) and 11(5) of Sustainable Finance Disclosure Regulation
The proposed draft RTS aim to: (i) facilitate disclosures to end investors regarding the investments of financial products in environmentally sustainable activities; and (ii) create a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation by amending the draft RTS to minimise duplication. The ESAs’ proposal as to how and to what extent activities funded by financial products are taxonomy-aligned, includes a graphical representation of the taxonomy-compliant investments of the products and a key performance indicator (KPI) calculation for that alignment alongside a statement showing that the activities funded by the products are compliant with the criteria of the Taxonomy Regulation. The ESAs also propose to standardise the presentation of the disclosures by amending the templates to add a new section that includes the disclosures required under the Taxonomy Regulation.
Comments on the consultation are due by 12 May 2021. The ESAs plan to issue a report with final draft RTS by July 2021.
In January 2021, the European Commission asked the Platform to provide advice on transition financing. The Commission identified that more work is needed on how the Taxonomy can enable inclusive transition financing for companies and other economic actors working to improve their environmental impact. In its advice, the Platform highlights the importance of bank lending for the transition towards a green economy and the need to ensure that the forthcoming reporting and disclosure standards are coherent, pragmatic and enable all market participants, from corporates to SMEs, to access the green finance for the transition. The Platform underlines the importance of the EU Taxonomy to identify the investments that are much needed to reach the Green Deal goals, and its role as a tool for companies to plan and finance transition investments to reach the Green Deal and climate targets. The EU has set climate and energy targets for 2030, and aims to be climate-neutral by 2050.