February 2025 Regulatory Roundup

INVESTMENT SERVICES & CAPITAL MARKETS

MIFID and MIFIR 

Start of Designated Publishing Entity (DPE) regime on 3 February and end of publication of Systematic Internalisers data

On 24 January 2025, ESMA published an announcement to remind market participants that the new regime for the reporting of Over the Counter (OTC) transactions for post-trade transparency purposes becomes fully operational on 3 February 2025. ESMA also informed stakeholders that the quarterly publication of systematic internalisers (SI) data will be discontinued with immediate effect.

Following the MIFIR review, the responsibility for reporting OTC-transactions will shift from SIs to the new Designated Publishing Entities (DPEs). The old approach has led many investment firms to opt in to the status of SI to be able to report the trades for their clients. When these firms were not dealing on own account on a systematic basis this added disproportionate requirements to them. 

The DPE regime allows National Competent Authorities (NCAs) to grant the status of DPE to investment firms. DPEs, when they are party to a transaction, will need to make these transaction public through an approved publication arrangement (APA). 

ESMA maintains a public register of DPEs by class of financial instruments, to help market participants to identify those entities. 

Discontinuation of the SI quarterly calculations

Following the application of the MIFID II amendments, it will no longer be necessary for ESMA to perform SI calculations from September 2025. In view of the resources needed to perform the calculations and the fact that the regime will end shortly, ESMA has decided to discontinue the voluntary publication of quarterly SI calculations data already now. This action will also reduce the administrative burden for investment firms.

Consequently, the mandatory SI regime will no longer apply from 1 February 2025, and investment firms will not need to perform the SI-test. However, investment firms can continue to opt into the SI-regime.

ESMA publishes data for quarterly bond liquidity assessment
On 31 January 2025, ESMA published the new quarterly liquidity assessment of bonds.

As indicated in the item above, quarterly publication of systematic internalisers (SI) has been discontinued.

ESMA has published the latest quarterly liquidity assessment for bonds available for trading on EU trading venues. For this period, there are currently 1,342 liquid bonds subject to MiFID II transparency requirements.

ESMA’s liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, which includes the daily average trading activity (trades and notional amount) and the percentage of days traded per quarter. ESMA updates the bond market liquidity assessments quarterly. However, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in ESMA’s Financial Instruments Transparency System (FITRS), which shall be applicable the day following publication.  

The full list of assessed bonds is now available through FITRS in the XML files with publication date from 31 January 2024  (see here) and through the Register web interface (see here).  

EMIR 

European Commission adopts Delegated Regulation on OTC derivatives identifying reference data under MIFIR

On 24 January 2025, the European Commission adopted a Delegated Regulation supplementing MIFIR on OTC derivatives identifying reference data to be used for the purposes of the transparency requirements laid down in Article 8a(2) and Articles 10 and 21, following its consultation on the draft text in June 2024.

The identifying reference data are to be used from 1 September 2026 for OTC interest rate and OTC credit default swaps. The Delegated Regulation includes an annex which lists identifying reference data for OTC interest rate swaps and separately lists standard business terms for the reference rates referenced in OTC interest rate swaps subject to the MIFIR transparency requirements.

The Delegated Regulation will enter into force 20 days after its publication in the Official Journal.

Central Securities Depositories Regulation (CSDR)

ESMA updates its Q&A on CSDR

On 6 January 2025, ESMA updated its Q&A on the following topic:

• Change of beneficial ownership (714)

Market data

ESMA publishes the results of the survey on legal entities identifiers

On 3 February 2025, ESMA published the results of the survey (overview of the LEI survey results) conducted last October on legal entities identifiers. (Full LEI survey results are here: Granular Results on the Legal Identifier Survey)

The ESMA survey on legal entity identifiers was launched on 18 October 2024, following the publication of the ESAs opinion on identification of ICT third party providers in DORA. The objective of the survey was to collect feedback from market participants on the opportunities and challenges, costs and benefits, of using different identifiers (other than the LEI) in future financial reporting more broadly.

The survey gathered evidence on the impacts of including alternatives for reporting, disclosure or record keeping requirements.

The results show:

• strong engagement of the industry on the topic (136 respondents),
• very high costs associated with gearing the reporting systems of financial firms towards additional identifiers (on average 360k Euros per firm and with a median of 40k Euros),
• an overwhelming preference for the Legal Entity Identifier (LEI) as the legal entity identifier for reporting (86% of respondents), and
• pan-EU associations making constructive suggestions to improve EUID automation and its interoperability with LEI to reduce the burden and avoid duplications.

This publication aligns with ESMA’s Data Strategy 2023-2028 by focusing on consistency of data standards across the various reporting frameworks. The approach aims to promote cost-efficient reporting and to explore, with the relevant stakeholders, opportunities to reduce the reporting burden.

ESMA will organise a follow up workshop with the respondents to the survey and other invited stakeholders to further socialise the results and discuss possible future actions.[/vc_column_text][/vc_column][/vc_row][/vc_section][vc_section css=”.vc_custom_1609007282200{margin-bottom: 20px !important;}”][vc_row css=”.vc_custom_1609007241176{padding-right: 15px !important;padding-left: 15px !important;}”][vc_column css=”.vc_custom_1612794217189{margin-bottom: 20px !important;padding-top: 3px !important;padding-right: 20px !important;padding-bottom: 3px !important;padding-left: 20px !important;background-color: #283a66 !important;}”][vc_column_text]

OPERATIONAL RESILIENCE

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]DIGITAL OPERATIONAL RESILIENCE ACT (DORA)

ESMA updates its Q&A on DORA
On 11 January 2025, ESMA updated its Q&A on DORA in respect of the following topics:

• Questions on Microenterprises and RMF(2219)
• ICT-related incidents (management / classification / reporting) – Critical Services Affected
• ICT-related incidents (management / classification / reporting) – Duplicate ICT Incident Reporting
• Oversight framework of CTPPs – Exemption for Non-EU ICT Intra-group Service Providers

ESAs publish study on feasibility of further centralisation of major ICT-related incident reporting by financial entities

On 17 January 2025, the three European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) published a report on the feasibility of further centralisation in the reporting of major ICT-related incidents by financial entities according to Article 21 of the Digital Operational Resilience Act (DORA).

The report, prepared jointly by the ESAs in accordance to Article 21 of DORA, is based on input received from Competent Authorities and the ESAs’ Stakeholders Groups. The ESAs also drew on the expertise of a renowned IT strategy firm and consulted the ECB and the European Union Agency for Cybersecurity (ENISA) while drafting the report.

In line with the DORA mandate, the ESAs’ joint report explores the potential for further centralisation regarding financial entities’ reporting of major ICT-related incidents to competent authorities.

The report assesses the feasibility of three different models: the baseline model, a model with enhanced data sharing arrangements and a fully centralised model. It considers the potential burden and cost reductions, as well as the efficiency and effectiveness gains that each model would bring for cross-sector supervisory practices.

The joint report has been submitted to the European Parliament, the European Council and the European Commission, which will consider its findings for potential future developments in relation to the further centralisation of major ICT-related incident reporting in the financial sector.

ESAs approve terms of reference for new EU-systemic cyber incident co-ordination framework Forum under DORA

On 27 January 2025, the European Supervisory Authorities (ESAs) published the terms of reference for the EU systemic cyber incident co-ordination framework Forum established under DORA.

The Forum will be composed of representatives of EU and national bodies, including the ESAs and the European Commission. The Forum is tasked with:

• developing and maintaining documents, protocols, procedures, arrangements, taxonomy and plans to support co-ordination in case of crisis mode, taking into account the existing coordination frameworks and the cyber threat landscape;
• preparing the set-up of a dedicated ad-hoc group responsible for managing crisis mode; and
• exercise and test the protocols and procedures to ensure continued preparedness in the event of activation of crisis mode.

The terms of reference will be subject to review and endorsement by the Joint Committee and subsequent approval by the ESAs’ Boards of Supervisors, and adapted to reflect any new developments, as relevant and appropriate, every two years. The terms of reference came into effect on 17 January 2025.[/vc_column_text][/vc_column][/vc_row][/vc_section][vc_section css=”.vc_custom_1609007282200{margin-bottom: 20px !important;}”][vc_row css=”.vc_custom_1609007241176{padding-right: 15px !important;padding-left: 15px !important;}”][vc_column css=”.vc_custom_1612794217189{margin-bottom: 20px !important;padding-top: 3px !important;padding-right: 20px !important;padding-bottom: 3px !important;padding-left: 20px !important;background-color: #283a66 !important;}”][vc_column_text]

FUNDS

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Money Market Funds (MMF)

ESMA publishes its final report on updated guidelines on stress test scenarios under MMF Regulation

On 7 January 2025, ESMA published its final report on guidelines on stress test scenarios under the Money Market Funds (MMF) Regulation.

Article 28 of the MMF Regulation requires ESMA to annually update the guidelines taking into account the latest market developments.

The final report includes: (i) an additional explanation on the way to report the results of the macro systemic shocks in section 4.8 of the guidelines; and (ii) updated guidelines and risk parameters, so that managers of MMFs have the information needed to fill in the reporting template mentioned in Article 37 of the MMF Regulation, in section 5 of the guidelines.

The annex to the report contains the full text of the updated guidelines and the calibration of the scenarios for 2024, with the changes illustrated in red text.

The guidelines will be translated into the official EU languages and published on the ESMA website. The publication of the translations will trigger a two-month period during which national competent authorities (NCAs) must notify ESMA whether they comply or intend to comply with the guidelines.

The updated guidelines, including the new 2024 parameters, will apply two months after the publication of the translations. Once the guidelines apply, managers will have to report the results of the new parameters to NCAs with their quarterly reports, for the purpose of the reporting referred to in Article 37 of the MMF Regulation and set out in Commission Implementing Regulation (EU) 2018/7083.

Until then, ESMA explains that managers should continue to use the parameters set in the 2023 guidelines and report the results accordingly.

In addition to the report, on 7 January 2025, the European Systemic Risk Board (ESRB) published the adverse scenario for the 2024 ESMA’s MMF stress-testing guidelines (dated 3 December 2024).

The document sets out the adverse financial market scenario for the stress-testing exercise carried out by ESMA. The ESRB, in collaboration with the ECB and ESMA, has updated the calibration of stress parameters for the 2024 ESMA MMF guidelines. The updated parameters were approved by the ESRB General Board in November. All assumptions about redemptions and the additional guidance on applying the scenario are provided by ESMA as part of its MMF stress-testing guidelines.

UCITS and AIFs

ESMA updates its Q&As on AIFMD

On 10 January 2025, ESMA updated it A&A on AIFMD on the following two topics:

• Permission of AIFMs to delegate portfolio or risk management to non-supervised undertakings established outside of the EU(2229)
• AIFMs safekeeping client money(2230)

ESMA published its report on cost and performance of EU retail investment products

On 14 January 2025, ESMA publishes its seventh market report on the costs and performance of EU retail investment products, showing a decline in the costs of investing in key financial products.

Despite this decline the cost levels of funds in the EU remain high by international standards. With more than 50,000 funds and an average fund size almost 10 times smaller than that of for example US mutual funds, EU funds do not exhaust the economies of scale commensurate with the EU’s single market. The market inefficiencies revealed by this higher cost level shows the need to focus on the competitiveness of EU markets, within a future Savings and Investments Union.

The key findings in the report are:

• UCITS costs decline gradually, from high levels: Costs have declined, but investors should continue to consider fund fees carefully in their investment decisions – especially since costs have not dropped for all categories of funds: ongoing costs of mixed funds and equity passive funds have been relatively stable over time. 
• UCITS performance slightly improved: Returns progressed in 2023 but remained far from their 2021 levels. The annual net performance of bond and mixed funds improved between 2022 and 2023 but remained in negative territories.
• ESG UCITS with lower costs and higher performance that non-ESG: Ongoing costs of retail ESG funds remain lower or similar to the ongoing costs of non-ESG equivalents. Overall, ESG funds outperformed their non-ESG equivalents in 2023. This hides some disparities across asset classes: non-ETF equity ESG funds outperformed, while equity ETF, fixed income and mixed ESG funds underperformed.
• Alternative Investment Funds less demanded by retail investors: The market for Alternative Investment Funds remained dominated by professional investors and is less invested by retail investors compared with the UCITS market. The share of retail investors decreased between 2022 and 2023: from 14% to 11%. In 2023, annualised gross and net performance improved significantly compared with 2022, with all fund strategies having positive returns. 
• Structured Retail Product costs improve but remain difficult to assess for clients: In 2023, the share of products referencing interest rates and inflation rose to around one fifth of sales volumes, a sharp increase from 2022. This trend followed higher interest rates and inflation. Costs – largely charged in the form of subscription fees – fell in 2023 for some common product types, although they vary substantially by payoff type and country. Structured Retail Products that matured in 2023 consistently delivered positive returns in gross terms, but these figures do not consider the incidence of costs paid by investors.

This report aims at facilitating increased participation of retail investors in capital markets by providing consistent EU-wide information on cost and performance of retail investment products. Improvements in data availability continue, but significant data issues persist. 

Following the review of the AIF managers directive and the UCITS directive, ESMA has been mandated to produce a report on costs linked to investment in UCITS and AIFs. For the purpose of this report, ESMA launched a data collection exercise together with the national competent authorities. This analysis will be part of an enhanced 2025 ESMA market report on costs and performance of EU retail investment products that is expected to bring new insights and more granular information on fund costs.[/vc_column_text][/vc_column][/vc_row][/vc_section][vc_section css=”.vc_custom_1609007282200{margin-bottom: 20px !important;}”][vc_row css=”.vc_custom_1609007241176{padding-right: 15px !important;padding-left: 15px !important;}”][vc_column css=”.vc_custom_1612794217189{margin-bottom: 20px !important;padding-top: 3px !important;padding-right: 20px !important;padding-bottom: 3px !important;padding-left: 20px !important;background-color: #283a66 !important;}”][vc_column_text]

SUSTAINABLE FINANCE

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Sustainable Finance

The Platform on Sustainable Finance publishes report advising European Commission on the development and assessment of corporate transition plans

On 23 January 2025, the EU Platform on Sustainable Finance (PSF) published a report providing advice to the European Commission on the development and assessment of corporate transition plans.

The PSF identifies core elements for evaluating transition plans and makes recommendations to the European Commission on how best to improve the effectiveness of its policy framework and support the market’s provision and access to transition finance. In its report, the PSF states that companies should clearly communicate to financial market participants (FMPs) any gaps and how they will be addressed. FMPs, should then use credible and robust transition plans to help inform their investment and lending decisions, supporting companies in enhancing their plans over time.

The key recommendations addressed in the report include:

• developing sectoral transition pathways for high-emitting sectors at the EU level, including technology roadmaps;
• providing guidance for selecting scenarios that can be used for credible science-based corporate target setting and transition planning;
• creating criteria for qualifying targets as credible and science-based;
• considering robust transition plans as a valuable source of information for discussions on future decarbonisation initiatives and infrastructure planning;
• conducting further work to explain the depreciation of assets at risk of becoming stranded, the impact of embedded emissions in fossil fuel reserves, and the identification of carbon lock-in with new investments;
• introducing a monitoring framework or a public registry of emission reduction data per sector to track implementation of transition plans at company and sector-level; and
• implementing a common transition plan template for non-financial undertakings, for use across different areas of EU legislation.

Taxonomy

EU platform on sustainable finance draft report and call for feedback on activities and technical screening criteria to be updated or included in EU Taxonomy

On 8 January 2025, the EU Platform on Sustainable Finance (PSF) published a draft report on activities and technical screening criteria to be updated or included in the EU taxonomy, with a related call for feedback.

The draft report, prepared by the PSF’s technical working group (TWG), is a deliverable required under the EU Taxonomy Regulation. The draft report contains preliminary recommendations relating to:

• the review of the criteria and analysis for the EU Taxonomy Climate Delegated Act;
• new activities mandated by the European Commission;
• new activities mandated by the European Commission but not completed; and
• further recommendations for climate change adaptation.

The deadline for comments was 5 February 2025. The PSF explains that the aim is to gather feedback and evidence from a wider set of stakeholders, to improve the draft criteria and make them more robust and usable. However, the PSF emphasises that the call for feedback is not an official European Commission consultation.

[/vc_column_text][/vc_column][/vc_row][/vc_section][vc_section css=”.vc_custom_1609007282200{margin-bottom: 20px !important;}”][vc_row css=”.vc_custom_1609007241176{padding-right: 15px !important;padding-left: 15px !important;}”][vc_column css=”.vc_custom_1612794217189{margin-bottom: 20px !important;padding-top: 3px !important;padding-right: 20px !important;padding-bottom: 3px !important;padding-left: 20px !important;background-color: #283a66 !important;}”][vc_column_text]

CySEC DEVELOPMENTS

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”8217″ img_size=”full” alignment=”center”][vc_column_text]Circular C677: Adoption of the European Banking Authority (the ‘EBA’) Guidelines EBA/GL/2024/04 on the resubmission of historical data under EBA reporting framework

On 9 January 2025, CySEC issued Circular C677 to inform CIFs that on 8 April 2024, EBA has issued the following EBA/GL/2024/04 Guidelines, on resubmission of historical data under EBA reporting framework. CySEC has adopted the Guidelines, under article 54 of Regulation 2019/2033.

The guidelines are applicable to the supervisory and resolution reporting framework established by the EBA (covering technical standards and guidelines), where financial institutions submit data regularly to the competent and resolution authorities. They also apply when financial institutions choose to voluntarily submit data required by the EBA reporting framework.

Circular C678: Guidelines on funds’ names using ESG or sustainability-related terms (ESMA 34-1592494965-657)

On 21 January 2025, CySEC issued Circular C678 to inform Regulated Entities that the ESMA has published Guidelines on funds’ names using ESG or sustainability related terms. The purpose of the Guidelines is to specify the circumstances under which the fund names using ESG or sustainability related terms are unfair, unclear or misleading to investors.

CySEC notes that the Guidelines are applicable as of 21^st November 2024 and Regulated Entities should apply the Guidelines immediately in respect of new funds created after the date of application of the Guidelines. The Managers of any funds created after the date of application of the Guidelines should comply with the Guidelines by no later than 21^st of May 2025.

In addition, on 13^th December 2024, ESMA published three Q&As that provide further guidance on certain aspects of the Guidelines. Specifically:

• The application of the exclusion criteria on green bonds;
• The convergence on “investing meaningfully in sustainable investments”;
• The definition of the term “controversial weapons” when complying with the exclusion criteria.

CySEC adopts the Guidelines and the relevant Q&As and expects that Regulated Entities will take the necessary actions to ensure their compliance with them.

Circular C679: European Banking Authority’s (‘EBA’) public Consultation Paper on Draft Regulatory Technical Standards amending Commission Delegated Regulation (EU) 2018/1108, on the criteria for the appointment of central contact points for crypto-asset service providers to strengthen the fight against money-laundering and terrorism financing in host Member States.

On 23 January 2025, CySEC issued Circular C679 to inform the Regulated Entities that the EBA has launched a public consultation on draft Regulatory Technical Standards (‘RTS’) specifying the criteria according to which crypto-asset service providers (‘CASPs’) should appoint a central contact point to ensure compliance with local anti-money laundering and countering the financing of terrorism (AML/CFT) obligations of the host Member State.

CASPs can provide services in other Member States through establishments other than branches. Once established, CASPs have to comply with local AML/CFT obligations, even if their establishments are not ‘obliged entities’ themselves.

Circular C680: ESMA launches a Common Supervisory Approach with NCAs on MiFID II sustainability requirements

On 31 January 2025, CySEC issued Circular C680 to inform CIFs that the ESMA has launched the CSA 2024-25 with national competent authorities on the integration of sustainability in firms’ suitability assessment and product governance processes and procedures in 2024.

The goal of the CSA 2024-25 will be to assess the progress made by intermediaries in the application of the key sustainability requirements, which entered into application in 2022 following the amendments to the MiFID II Delegated Acts. Please refer to the Circular for more information on the aspects that the CSA 2024-25 will cover.

CySEC urges all CIFs to adhere to the content of the Circular as it will form part of CySEC’s supervisory review for the purpose of the CSA 2024-25.[/vc_column_text][/vc_column][/vc_row][/vc_section]