European Systemic Risk Board
EMIR 3 - ESRB makes recommendations - 20 March 2023
The European Systemic Risk Board (ESRB) has published a letter that it sent to the European Parliament and the Council of the European Union, Council Working Party, on the proposed Regulation intended to mitigate excessive exposures to third-country central counterparties (CCPs) and improve the efficiency of EU clearing markets amending the European Market Infrastructure Regulation (648/2012/EU) (EMIR 3).
The ESRB recommends the inclusion of a number of additional components into EMIR 3. Among other things, it has identified some gaps in the framework that requires the establishment and maintenance of an active account in CCPs authorised in the EU. The ESRB also highlights the importance of improving data quality and filling data gaps in reports from EU CCPs and large banking groups. It would prefer to preserve the current temporary energy market exemption or apply it on a permanent basis subject to strict cumulative conditions about the acceptance of uncollateralised bank guarantees.
The ESRB is also of the view that the non-objection procedure should not be permitted where settlement in a new EU currency would be added to a class of financial instruments already covered by a CCP's authorisation. It also suggests a clarification to the interaction between the joint monitoring mechanism in the proposals and the existing supervisory framework.
Annexes to the letter set out drafting proposals relating to these aspects of EMIR 3.
Letter to Members of the European Parliament on EMIR review
Letter to the Council Working Party on EMIR review
European Securities and Markets Authority
MAR and the insider lists regime - ESMA publishes concerns - 20 March 2023
The European Securities and Markets Authority (ESMA) has published a letter, dated 10 March 2023, that it sent to the European Parliament and the European Securities and Markets Authority (ESMA) raising concerns about proposed changes to the Market Abuse Regulation (596/2014/EU) (MAR). This follows the European Commission’s package of listing reforms published in December 2022 which includes a proposed Regulation that would amend aspects of MAR (2022/0411 (COD)).
ESMA points out that, under the proposed amendments to Article 18 of MAR, an issuer's insider list would only need to include those persons that have regular access to inside information (known as permanent insiders). Insider lists will not therefore cover those with irregular access to inside information, thereby limiting the ability of national competent authorities to quickly identify non-permanent insiders. ESMA also observes that insiders will no longer be notified that they are in possession of inside information. This may increase the risk of unintended insider dealing and weaken issuers' control of the flow of inside information.
ESMA asks for these concerns to be taken into consideration during legislative discussions.
ESMA letter to European Parliament and Council of the European Union
Financial Conduct Authority
Diversity on listed company boards - Primary Market Bulletin published by the FCA - 20 March 2023
The FCA has published Primary Market Bulletin No. 44 focusing on the new Listing Rules and amended DTR on diversity-related disclosures. The first annual financial reports including disclosures subject to these rules will be published from April 2023.
The FCA reminds firms of its expectations under LR 9.8.6 R (9) and LR 14.3.33 R (1) which require in-scope companies to provide a ‘comply or explain’ statement in their annual financial report regarding certain data on the composition of their board and most senior level of executive management by sex or gender and ethnic background. The Bulletin notes that the FCA is responsible for monitoring and, where necessary, enforcing compliance with the new rules; its supervisory approach extends to identifying cases where regulatory intervention may be needed to make sure listed companies comply with the new requirements and improve the quality of their disclosures so that they are providing sufficient, decision-useful diversity and inclusion information for investors. The FCA intends to conduct periodic reviews of annual financial reports to determine whether listed companies are meeting the disclosure requirements and, if not, it may ask the company to take corrective action, for instance enhancing their disclosures in subsequent annual financial reports.
Over time, the FCA will also assess how far its regulatory intervention has resulted in a material improvement in both the completeness of diversity-related reporting and whether the targets have been met or exceeded.
FCA Primary Markets Bulletin No. 44
Notification and disclosure of net short positions under the UK Short Selling Regulation - FCA publishes updated webpage - 20 March 2023
The FCA has published an update on its webpage on the notification and disclosure of net short positions under the UK Short Selling Regulation (2012/236) (UK SSR).
As the update notes, certain shares are exempt from the notification and disclosure requirements in the UK SSR if the principal venue for the trading of the shares is located outside the UK. The UK List of Exempted Shares (namely, shares admitted to trading on UK trading venues where their principal venue for trading is outside the UK) that was valid up to, and including, 31 December 2022 has now been archived. The updated List, which is valid from 1 January 2023, has been reviewed to include shares admitted to trading on UK trading venues in November and December 2022 that were not previously considered. A revised version of this list will be available from 1 April 2023 and will apply to positions reached from that date. In the meantime, market participants may continue to use the existing updated list to determine whether they have a reportable position.
The webpage also explains the FCA’s calculations to determine whether shares admitted to trading in the UK and in third country jurisdictions have their principal venue for their trading outside the UK. The FCA’s biannual liquidity assessment has been undertaken in two stages: firstly, all shares admitted to trading on UK trading venues until 31 October 2022 were assessed to determine their principal trading venue in the previous two-year period. Secondly, shares admitted to trading in November and December 2022, that were not included in the first review, have been assessed to determine their principal trading venue. A revised list will be published on, and apply, from 1 April 2023.
FCA webpage: Notification and disclosure of net short positions
ESG benchmarks review - FCA publishes Dear CEO letter highlighting widespread failings - 20 March 2023
The FCA has published a Dear CEO letter addressed to benchmark administrators. The letter sets out the findings from the FCA’s preliminary review of the quality of ESG-related disclosures made by a sample of UK benchmark administrators. Overall, these were found to be “poor.” The risks and issues identified in the letter include the following:
- none of the benchmark administrators in the sample provided sufficient explanation of how ESG factors were reflected against each of the requirements set out in Article 27 of the UK Benchmarks Regulation (EU) 2016/1011;
- there was a lack of detail in benchmark methodologies, in particular, some benchmark methodologies did not clearly describe why certain ESG factors were applied;
- firms did not implement in full the ESG disclosure requirements outlined in the UK version of the Low Carbon Benchmarks Regulation (EU) 2019/2089; and
- firms failed to implement ESG benchmarks’ methodologies correctly, including by using outdated data.
The FCA expects all CEOs, senior leadership and boards to consider the messages set out in the letter as they apply to their business. Benchmark administrators must ensure that they have appropriate strategies to address the issues and risks identified, and they should be prepared to explain these strategies on request. Where firms fail to consider the FCA's feedback, the FCA will make use of its formal supervisory tools and, where appropriate, consider enforcement action.
The letter also refers to the upcoming consultation on whether and how to extend the FCA's perimeter to include ESG ratings providers.
FCA Dear CEO Letter: ESG Benchmarks Review