CSDR buy-in regime - European Commission adopts Commission Delegated Regulation amending RTS suspending application - 6 July 2022
The European Commission (the Commission) has adopted Commission Delegated Regulation C(2022) 4471 (final) amending the regulatory technical standards (RTS) laid down in Commission Delegated Regulation (EU) 2018/1229 on the date of application of the provisions related to the buy-in regime under article 7 of the Central Securities Depositories Regulation (909/2014/EU) (CSDR). The European Securities and Markets Authority (ESMA) published its final report containing the draft RTS in June 2022. The CSDR settlement discipline regime has applied since 1 February 2022.
The draft RTS defer the application of the mandatory buy-in rules for three years. The amendment is based on:
- the expected changes to the CSDR buy-in regime presented in the Commission's legislative proposal for a review of the CSDR, which was published in March 2022; and
- the amendment made to the CSDR through the DLT Pilot Regulation ((EU) 2022/858), which allows ESMA to propose a later start date for the CSDR buy-in regime. The deferral will allow the Commission, the European Parliament and the Council of the EU additional time to determine the best way forward to improve settlement efficiency.
The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulation. If neither object, it will enter into force and apply on the 20th day following its publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 6.7.2022 amending the regulatory technical standards laid down in Delegated Regulation (EU) 2018/1229 as regards the date of application of the provisions related to the buy-in regime (C(2022) 4471 final)
Qualification of financial advisors - European Commission publishes report - 7 July 2022
The Commission has published a report (SWD(2022) 184 final) (dated 30 June 2022) on the current framework for the qualification of financial advisors in the EU and on possible ways forward (the Report). The Report examines the feasibility of potential improvements to the quality of financial advice in the EU, as well as the establishment of a pan-EU label for financial advisors. It follows the Commission’s May 2021 consultation paper on its retail investment strategy for the EU.
The Report recommends exploring possibilities to further strengthen the requirements and standards for advisors at EU-level, notably as part of the future retail investment strategy. This includes improving the qualification requirements in the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Insurance Distribution Directive ((EU) 2016/97) (IDD).
Commission Staff Working Document: Report on the current framework for qualification of financial advisors in the EU and assessment of possible ways forward (SWD(2022) 184 final)
EU SME referral scheme - European Commission publishes report - 7 July 2022
The Commission has published a report (SWD(2022) 178 final) (dated 28 June 2022) on the merits and feasibility of setting up a referral scheme to require banks (and other providers of funding) to direct small and medium-sized enterprises (SMEs) to alternative providers of funding in case they turn down their funding application (the Scheme). The Scheme aims to grant SMEs access to a wider set of funding options. It forms part of the Capital Markets Union action plan, which was adopted by the Commission in September 2022.
The Report sets out three alternative approaches to setting up an SME referral scheme: (i) referral to designated providers; (ii) a standardised SME information sheet; and (iii) uploading SME information onto a European Single Access Point (ESAP). The Commission also highlights ‘open finance’ solutions as a possible alternative avenue.
Commission Staff Working Document: Report on an EU SME referral scheme (SWD(2022) 178 final)
European Securities and Markets Authority
ESMA 2022 deliverables - ESMA publishes letter to European Commission - 30 June 2022
The European Securities and Markets Authority (ESMA) has published a letter, dated 28 June 2022, (ESMA22-106-4013) to the European Commission (the Commission) detailing the prioritisation of its 2022 deliverables.
Following ESMA’s September 2021 assessment of the tasks and commitments outlined in its 2022 Annual Work Programme (AWP), it has identified a set of deliverables that could be deprioritised or postponed. ESMA explains that it conducted the assessment due to certain external factors which have impacted its workload since the publication of the 2022 AWP. These include: (i) the Russian invasion of Ukraine; (ii) several ambiguous legislative proposals, including on the European single access point and consolidated tape providers; and (iii) overall resource constraints.
ESMA intends to delay the production of:
- refit reports required under article 85(1a) and (3a) of the European Market Infrastructure Regulation (648/2012/EU) (EMIR);
- reports relating to the efficiency of the Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR) under article 29(1), and on fees required under article 29(4), of the SFTR; and
- the peer review on the implementation of the simple, transparent and standardised securitisation criteria.
ESMA also intends not to publish reports in 2022 relating to:
- the implementation of the Central Securities Depositories Regulation (909/2014/EU);
- accepted market practices under the Market Abuse Regulation (596/2014/EU);
- supervisory measures and penalties under EMIR; and
- Commission delegated Regulation (EU) 2017/583), which supplements the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR).
ESMA letter to European Commission: Prioritisation of 2022 ESMA deliverables (ESMA22-106-4013)
Fourth EU-wide CCP stress test - ESMA publishes report - 5 July 2022
ESMA has published a report (ESMA91-372-2060) detailing the results of its fourth stress test exercise in relation to EU central counterparties (CCPs) (the Report). The results confirm the overall resilience of EU CPPs, and third country Tier 2 CCPs, to credit, concentration and operational risks under the tested scenarios and implemented framework.
Key findings from the Report include that:
- CCPs have sufficient barriers to withstand adverse market developments and the default of the two clearing members with the largest exposures within each CCP;
- there are gaps between the necessary and available buffers for concentration risks for some CCPs, particularly in commodity derivatives markets;
- for operational risks, differences in terms of risk sources, exposures and mitigation tools across CCPs need to be further assessed on an individual basis before ESMA issues any potential recommendations; and
- most of the analysed operational events stem from third-party services. A number of critical third-party service providers have the potential to affect the critical functions of multiple CCPs.
ESMA notes that, while the exercise was completed, the Russian invasion of Ukraine caused extreme market movements for instruments across the commodities and energy markets. It closely monitored the financial impacts that the invasion had on CCPs and concluded that they remained resilient during the crisis, despite extreme prices and increased market volatility.
In line with the European Market Infrastructure Regulation ((EU) 648/2012) (EMIR) mandate, where the stress test assessments expose shortcomings in the resilience of one or more CCPs, ESMA will issue the necessary recommendations. ESMA has also published FAQs on the stress test.
ESMA Report: Fourth ESMA stress Test Exercise for Central Counterparties (ESMA91-372-2060)
European Money Markets Institute
EURIBOR - EMMI publishes outcome of second annual review - 29 June 2022
The European Money Markets Institute (EMMI) has published the outcome of its second annual review of the Hybrid Methodology for the Euro Interbank Offered Rate (EURIBOR). The review was intended to assess whether the benchmark remains robust, resilient and representative of its underlying market, as well as identifying whether any further recalibrations would be beneficial.
The review and analysis run by the EMMI in 2021 suggests that the following four non-material adjustments would improve the Hybrid Methodology:
- enlarging the 12-month maturity window of Level 1 (panel bank contributions based solely on eligible transactions in the unsecured euro money market) by 15 days;
- using the previous 5-days banks’ contributions to calculate the Spread Adjustment Factor (SAF) used to determine Level 2.1 (panel bank contributions based on transactions across the broader money market maturity spectrum);
- using the previous banks’ contributions to calculate the adjustment used to determine Level 2.2 (same panel bank contributions in relation to qualifying non-standard maturity transactions where the maturity date falls between two defined tenors); and
- qualifying a Level 2.2 rate as eligible if the original volume of the trade is higher than 10 million euro.
The EMMI notes that these amendments will be implemented on 3 October 2022.
Bank of England
Fees for incoming CCPs and CSDs - Bank of England publishes two consultation papers - 30 June 2022
The Bank of England (the Bank) has published two consultation papers on the fees regime for incoming (i.e. non-UK) central counterparties (CCPs) and central securities depositories (CSDs). The consultation papers are relevant to incoming CCPs and CSDs that are seeking, or intend to seek recognition by the Bank to provide clearing services in the UK, including those currently in the Temporary Recognition Regime.
The consultation papers set out the Bank’s proposed approach to levying recognition fees and annual fees on recognised incoming CCPs and CSDs, under paragraph 36(1) of schedule 17A to FSMA 2000, and regulation 50 of the Central Securities Depositories Regulations (909/2014/EU), respectively. The proposals include how the Bank intends to levy fees: (i) on incoming CCPs and CSDs at the point of recognition (under article 25 of the European Market Infrastructure Regulation (648/2012/EU) (EMIR) for CCPs) (recognition fees); (ii) on recognised incoming CCPs and CSDs for monitoring and/or supervision on an annual basis (annual fees); and (iii) on Tier 2 CCPs for the assessment of a comparable compliance application on request, under article 25a(1) of EMIR (comparable assessment fee).
The Bank’s proposals in relation to its fees regime for incoming CCPs include:
- replacing the current £35,000 fee for the recognition of incoming CCPs with a £50,000 base recognition fee;
- introducing a supplementary recognition fee for Tier 2 CCPs, which will be calculated for a given incoming CCP to reflect the costs incurred by the Bank in assessing its recognition application that are in excess of the base recognition fee;
- introducing a flat comparable compliance assessment fee of £30,000 payable by Tier 2 CCPs that submit a reasoned request for comparable compliance to the Bank under article 25a(1) of EMIR;
- introducing an annual flat fee of £9,000 payable by Tier 1 CCPs that do not require an informed reliance assessment with the relevant home authority, which will be subject to review on at least an annual basis;
- introducing an annual fee payable by all other Tier 1 CCPs and Tier 2 CCPs charged on a cost-recovery basis as in aggregate; and
- aligning the annual fee cycle for incoming CCPs to the cycle used for the Bank’s existing fees regime for the supervision of financial market infrastructures (FMIs).
The Bank’s proposals in relation to its fees regime for incoming CSDs include:
- replacing the current £30,000 fee for the recognition of incoming CSDs with a £45,000 recognition fee;
- introducing an annual flat fee of £6,000 payable by those incoming CSDs the Bank judges to present low potential risks to UK financial stability, which will be subject to review on at least an annual basis;
- introducing an annual fee payable by the remaining incoming CSDs, charged on a cost-recovery basis, in aggregate, and reflecting the higher level of monitoring and/or supervision undertaken by the Bank;
- aligning the annual fee cycle for incoming CSDs to the cycle used for the Bank’s existing fees regime for the supervision of FMIs.
The deadline for responses to both consultation papers is 15 September 2022. The proposed implementation date for the Bank’s proposals is 1 December 2022. The Bank explains that, to avoid doubt, no fees would be levied on incoming CCPs or CSDs until they have been recognised by the Bank.
Consultation paper: The Bank of England’s fees regime for incoming central counterparties
Consultation paper: The Bank of England’s fees regime for incoming central securities depositories
Financial Conduct Authority
UK-based equity markets - FCA publishes Consultation Paper (CP22/12) - 5 July 2022
The FCA has published a Consultation Paper (CP22/15) detailing proposals that aim to improve how UK-based equity markets operate. The Consultation Paper is part of the Wholesale Markets Review, which the FCA has been conducting with HM Treasury to improve the UK’s regulation of secondary markets. It follows the FCA’s November 2021 Policy Statement (PS21/20) on changes to conduct and organisational requirements laid down in UK laws and regulations implementing the Markets in Financial Instruments Directive (2014/65/EU) (UK MiFID).
The Consultation Paper focuses on reforms that are not contingent on changes that are intended to be implemented via the forthcoming Financial Services and Markets Bill 2022-23.
The FCA proposes reforms to lower the cost of reporting for firms, improve post-trade transparency and remove some restrictions that are limiting the ability of UK trading venues to compete with other markets. The FCA explains that the changes will:
- improve the content and consistency of post-trade transparency reports;
- establish a new designated report status for over-the-counter trades;
- allow UK trading venues to use reference prices from overseas markets where those prices are robust, reliable and transparent; and
- permit the use of the tick size regime from overseas primary markets.
The FCA is also seeking views on the structure of UK markets for retail orders and on its approach to improving UK markets’ resilience to outages. Appendix 1 sets out the draft instrument amending the regulatory technical standards (RTS) in the UK versions of Commission Delegated Regulations (EU) 2017/587, (EU) 2017/583 and (EU) 2017/588.
The deadline for responses is 16 September 2022. The FCA will submit relevant updated RTS to HM Treasury for approval. If approved, the FCA will make and publish a policy statement and amend the RTS.
The FCA intends to consult on other reforms covered in the Wholesale Markets Review, which are more closely linked to changes to legislation during 2022 and 2023. The FCA will also consider in due course if a broader review of equity markets is needed in other areas covered by its existing powers, or for which the FCA will receive new powers as part of the outcomes of the Future Regulatory Framework Review.
FCA Consultation Paper: Improving Equity Secondary Markets (CP22/12)