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- February 12, 2025
INVESTMENT SERVICES & CAPITAL MARKETS
MIFID and MIFIR
Public hearing on ESMA consultations on amendments to RTS on transaction data reporting and order book data under the MIFIR Review
On 3 October 2024, ESMA launched two consultations on the review of regulatory technical standards (RTS) on transaction data reporting and order book data under MIFIR Review. Please see Regulatory Updater September 2024.
ESMA will hold on Wednesday, 18 December 2024 from 10:00 to 12:30 CEST a virtual public hearing on the Consultation Papers.
This public hearing provides all stakeholders the opportunity to gain an in-depth understanding of the ESMA’s proposed revisions of standards ahead of the extended deadline of 17 January 2025 (originally 3 January 2024) for the submission of consultation’s feedback.
Central Securities Depositories Regulation (CSDR)
ESMA finalises its advice on the CSDR Penalty Mechanism
On 19 November 2024, ESMA published its Final Report on the Technical Advice for the European Commission on the Penalty Mechanism under the Central Securities Depositories Regulation (CSDR).
The advice aims at incentivising all actors in the settlement chain to improve settlement efficiency, also in view of the potential move to T+1 in the EU.
The report outlines ESMA’s advice to improve the application of the CSDR penalty mechanism on three main aspects:
- alternative parameters to calculate the penalties due to lack of cash, when the official interest rate for overnight credit charged by the central bank issuing the settlement currency is not available;
- the treatment of historical reference prices for the calculation of late matching fail penalties;
- the design and level of the penalty rates for each asset class.
Regarding the last point, ESMA proposes to maintain the design of the current penalty mechanism, for example not introducing fundamental changes to the methods for calculating penalties, and to introduce an overall moderate increase of the penalty rates, in full alignment with the current types of settlement fails and targeting most asset classes.
Since its application as of February 2022, the penalty mechanism under the CSDR has improved settlement efficiency in the EU by ensuring that participants failing to deliver securities or cash by the intended settlement date incur a penalty. ESMA believes that cash penalties can continue to have a positive impact on settlement efficiency overall.
The European Commission will take into account ESMA’s Technical Advice when amending the Commission Delegated Regulation (EU) 2017/389. The revised penalty mechanism will become applicable once the amended Commission Delegated Regulation has been adopted by the European Commission, scrutinised by the European Parliament and the Council of the EU, and published in the EU Official Journal.
Settlement cycle
ESMA proposes to move to T+1 by October 2027
On 18 November 2024, published its Final Report providing the assessment of the shortening of the settlement cycle in the European Union.
The report highlights that the increased efficiency and resilience of post-trade processes that should be prompted by a move to T+1 would facilitate achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives.
ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments and that it is achieved in Q4 2027. Considering the different elements assessed by ESMA, in particular the difficulties linked to the go-live of such a big project in November and December, and the challenges linked to the first Monday of October (just after the end of a quarter), ESMA recommends 11 October 2027 as the optimal date for the transition to T+1 in the EU. ESMA also suggests following a coordinated approach with other jurisdictions in Europe.
Regarding the quantification of the costs and benefits, the elements assessed by ESMA suggest that the impact of T+1 in terms of risk reduction, margin savings and the reduction of costs stemming from the misalignment with other major jurisdictions globally, will represent important benefits for the EU capital markets.
However, this change will also imply some challenges, including amending the Central Securities Depositories Regulation (CSDR) and the settlement discipline framework, in order to have legal certainty and foster the necessary improvements in post-trading processes to move successfully to T+1.
Additionally, all actors of the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency. This will require some level of investment.
The complexity of a trading and post-trading environment such as the EU capital markets means that this project will require a specific governance to be put in place.
Following the publication of this report, ESMA will continue its regulatory work related to the revision of rules on settlement efficiency, and addressing the T+1 governance together with the European Commission and the European Central Bank.
EMIR
Council of EU publishes text of Amending Directive under EMIR 3
On 8 November 2024, the Council of the EU published the text (dated 6 November) of the proposed Directive amending various directives on the treatment of concentration risk towards central counterparties (CCPs) and the counterparty risk on centrally cleared derivative transactions (Amending Directive) and the proposed Regulation amending EMIR, the Capital Requirements Regulation (CRR) and the Money Market Funds Regulation
The next step is for the Council to formally adopt the Directive and the Regulation – see next item
Council adopts EMIR 3 revamped rules for EU clearing services
On 19 November 2024, the Council adopted:
- the Directive amending the UCITS Directive, the Capital Requirements Directive and the Investment Firms Directive as regards the treatment of concentration risk arising from exposures towards central counterparties and of counterparty risk in centrally cleared derivative transactions; and,
- the Regulation amending EMIR, the CRR and the Money Market Funds Regulation as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets (EMIR 3),
The new rules improve EU clearing services by streamlining and shortening procedures, improving consistency between rules and strengthening CCP supervision. In particular, the new rules will contribute to reducing excessive reliance on systemic CCPs in non-EU countries, by requiring all relevant market participants to hold active accounts at EU CCPs and clear a representative portion of certain systemic derivative contracts within the single market.
The revised EMIR regulation and directive will be published in the EU’s Official Journal before entering into force 20 days later – see next item.
EMIR amending Directive and Regulation published in the Official Journal
On 4 December 2024:
- the EMIR amending Directive ((EU) 2024/2994) of the European Parliament and of the Council of 27 November 2024 amending Directives 2009/65/EC, 2013/36/EU and (EU) 2019/2034 as regards the treatment of concentration risk arising from exposures towards central counterparties and of counterparty risk in centrally cleared derivative transactions; and,
- the EMIR amending Regulation ((EU) 2024/2987) of the European Parliament and of the Council of 27 November 2024 amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets,
were published in the Official Journal.
The revised EMIR Directive (EU) 2024/2994 will enter into force 20 days after its publication in the Official Journal (24 December 2024). Member States are required to transpose the Directive by 25 June 2026.
The revised EMIR Regulation (EU) 2024/2987 enters into force on the twentieth day following its publication in the Official Journal (24 December 2024), except that certain provisions will not apply until the date of entry into force of certain technical standards.
ESMA consults on the conditions for the EMIR 3 Active Account Requirement
On 20 November 2024, ESMA published a Consultation Paper on the conditions of the Active Account Requirement (AAR) following the review of EMIR 3.
The amending Regulation introduces a new requirement for EU counterparties active in certain derivatives to hold an operational and representative active account at a Central Counterparty (CCP) authorised to offer services and activities in the European Union (EU).
ESMA is seeking stakeholder input on several key aspects of the AAR, including the:
- three operational conditions to ensure that the clearing account is effectively active and functional, including stress-testing;
- representativeness obligation for the most active counterparties; and
- reporting requirements to assess their compliance with the AAR
ESMA will consider the feedback received to this consultation by 27 January 2025 and aims to submit the final draft RTS to the European Commission within 6 months following the entry into force of EMIR 3.
ESMA will organise a public hearing on 20 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]
OPERATIONAL RESILIENCE
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]DIGITAL OPERATIONAL RESILIENCE ACT (DORA)
ESAs Joint Guidelines Joint Guidelines on the oversight cooperation and information exchange
On 6 November, 2024, the ESAs issued Joint Guidelines on the oversight cooperation and information exchange between the ESAs and the competent authorities.
The guidelines on the cooperation between the ESAs and the competent authorities cover:
- the detailed procedures and conditions for the allocation and execution of tasks between competent authorities and the ESAs; and
- the details on the exchanges of information which are necessary for competent authorities to ensure the follow–up of recommendations addressed to ICT third party service providers to financial entities designated as critical.
ESAs Statement on DORA Application
On 4 December 2024, the European Supervisory Authorities (ESAs) issues a Statement on DORA application.
As DORA together with the technical standards and guidelines developed by the European Supervisory Authorities (ESAs) in January2 and July 20243 will apply from 17 January 2025, the ESAs call on financial entities and third-party providers to advance their preparations to ensure their readiness.
As DORA does not provide for a transitional period, the ESAs emphasise the importance for financial entities to adopt a robust, structured approach in order to meet their obligations in a timely manner.[/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]UCITS and AIFMD
ESMA to collect data on costs linked to investments in AIFs and UCITS
On 14 November 2024, ESMA launched a data collection exercise together with the national competent authorities (NCAs), on costs linked to investments in AIFs and UCITS.
ESMA with the NCAs has designed a two-stage data collection involving both manufacturers and distributors of investment funds.
Information requested from manufacturers will provide an indication on the different costs charged for the management of the investment funds.
Information requested from distributors (i.e., investment firms, independent financial advisors, neo-brokers) will inform on the fees paid directly by investors to distributors.
This initiative contributes to shedding light on pricing practices in a key part of the EU financial markets, information that has until now not been accessible to retail investors and supervisory authorities. Greater transparency will allow investors to know more about the features of the products that are offered to them and will further support the development of a competitive market for UCITS and AIFs.
The data collection follows the Level 1 mandate received from the European Commission under the UCITSD/AIFMD review.
A report based on these data will be submitted to the European Parliament, the Council and the European Commission in October 2025. This will also be part of an enhanced 2025 ESMA market report on costs and performance of EU retail investment products.[/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]Taxonomy
European Commission guidance for financial institutions on Disclosures Delegated Act under Taxonomy Regulation published in Official Journal
On 8 November 2024, a European Commission notice was published in the Official Journal on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets.
The Disclosures Delegated Act supplements the EU Regulation on the establishment of a framework to facilitate sustainable investment, known as the Taxonomy Regulation. The purpose of this notice is to provide further interpretative and implementation guidance in the form of replies to FAQs to financial undertakings on the reporting of their KPIs under the Disclosures Delegated Act.
Through this notice, the European Commission intends to facilitate the compliance of stakeholders with the regulatory requirements in a cost-effective way and to ensure the usability and comparability of the reported information for scaling up sustainable finance.
The FAQs cover scope of covered entities, scope of the consolidation of disclosures, taxonomy-assessment of exposures to individual undertakings, taxonomy-assessment of groups, taxonomy-assessment of specific exposures, verification/assurance/evidence of compliance with the technical screening criteria and compliance with minimum safeguards. There are also separate questions related specifically to credit institutions and insurance and reinsurance undertakings.
Sustainability reporting
European Commission FAQs on sustainability reporting provisions in CSRD and SFDR
On 13 November 2024, the European Commission published a set of FAQs to clarify the interpretation of certain provisions on sustainability reporting introduced by: (i) the CSRD into the Accounting Directive, the Audit Directive, the Audit Regulation, and the Transparency Directive; (ii) the SFDR; and (iii) the first set of European Sustainability Reporting Standards, (ESRS).
ESG ratings activities Regulation
Council adopts new regulation on ESG rating activities
On 19 November 2024, the Council adopted a new regulation on environmental, social and governance (ESG) rating activities. The new rules aim at making rating activities in the EU more consistent, transparent and comparable in order to boost investors’ confidence in sustainable financial products.
ESG ratings provide an opinion of a company’s or a financial instrument’s sustainability profile, by assessing its impact on society and the environment and its exposure to risks associated with sustainability issues.
ESG ratings have an increasingly important impact on the operation of capital markets and on investor trust in sustainable investment products.
The new rules aim to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations that ESG ratings providers carry out and by preventing potential conflicts of interest.
In particular, ESG rating providers established in the Union will need to be authorised and supervised by ESMA. They will have to comply with transparency requirements, in particular with regard to their methodology and sources of information. ESG rating providers established outside the Union that wish to operate in the Union, will need to obtain an endorsement of their ESG ratings by an EU authorised ESG rating provider, a recognition based on a quantitative criterion, or be included in the EU registry of ESG rating providers on the basis of an equivalence decision.
The regulation introduces as a principle a separation of business and activities in order to prevent conflicts of interest.
The regulation will be published in the EU’s Official Journal and enter into force 20 days later. The regulation will start applying 18 months after its entry into force.[/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 C663: Requirements of the Polish Financial Supervision Authority regarding the referral and affiliate programmes offered by the investment firms in the territory of Poland
On November 12th, CySEC issued Circular C663 to draw the attention of CIFs to the UKNF’s position of October 2023, on referral and affiliate programmes run by investment firms in Poland. CySEC expects that all CIFs will take appropriate actions and measures to adhere to the UKNF’s requirements.
Circular C667: Publication of CySEC’s Review of compliance with the reporting obligation under the AIFM Law, as further specified with the Commission Delegated Regulation (EU) No. 231/2013.
On November 27th, CySEC issued Circular C667, to inform AIFMs about its review of compliance of AIFMs with their reporting obligation, as derived from Articles 4(3)(d) and 31 of the AIFM Law and as further specified under Article 110 of the Delegated Regulation (EU) No. 231/2013. Through the circular CySEC highlights the areas of concern identified during the review and warns that AIFMs not complying with their reporting obligations will face enforcement actions.
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