Official Journal of the European Union
MiFID II - Delegated Regulation on ancillary activities published in OJ - 20 October 2021
European Commission Delegated Regulation (EU) 2021/1833, supplementing the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) by specifying the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level (the Delegated Regulation) has been published in the Official Journal of the EU on 20 October 2021.
The European Commission adopted the Delegated Regulation on 14 July 2021, as previously reported in this Bulletin. The Delegated Regulation will enter into force on 9 November 2021.
Commission Delegated Regulation (EU) 2021/1833 of 14 July 2021 supplementing Directive 2014/65/EU of the European Parliament and of the Council by specifying the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level
European Securities and Markets Authority
ESMA Chair - ESMA announces appointment - 15 October 2021
The European Securities and Markets Authority (ESMA) has announced that Verena Ross has been appointed as its next Chair, having been an Executive Director at the Authority for the last 10 years. The appointment was confirmed by the Council of the European Union and will take effect from 1 November 2021. Ms Ross’ term of office will run for five years and may be extended once.
ESMA press release
European Council press release
Bank of England
UK central counterparties - Bank of England launches first public supervisory stress test framework - 19 October 2021
The Bank of England (the Bank) has launched its first public supervisory stress test (SST) of UK central counterparties (CCPs), which will take place over nine months in 2021 and 2022. The three recognised UK CCPs (ICE Clear Europe Ltd, LCH Ltd and LME Clear Ltd) will participate and all of their clearing services will be in scope.
The SST will explore the system-wide credit and liquidity resilience of UK CCPs. The Bank intends to use the findings from this exercise in conjunction with feedback to its Discussion Paper on CCP supervisory stress testing which was published in June 2021, to inform the further development of the CCP SST framework.
The SST will include credit and liquidity components. The credit component will test the sufficiency of CCPs’ resources to withstand a combination of market stress scenarios and clearing member defaults. The liquidity component will test the ability of CCPs to service all relevant cash requirements under a combination of market stress scenarios and the default and non-performance of clearing members and service providers.
The exercise will apply to CCP resources, exposures and market prices as of the close of business on 17 September 2021. The Bank intends to publish the findings of the SST in summer 2022.
Press release
Financial market infrastructure supervision - Bank of England publishes Policy Statement on fees regime - 18 October 2021
The Bank of England (the Bank) has published a Policy Statement on the fees regime for the supervision of financial market infrastructure (FMI) participants for 2021/22. The Policy Statement is relevant to all FMIs that currently pay FMI supervisory fees to the Bank or are expecting to do so within the 2021/22 fee year. It sets out:
- the final fee rates in relation to the Bank’s 2021/22 funding requirement for its FMI supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers; and
- the actual costs incurred in 2020/21 and the impact on FMI fees charged for 2021/22, including the Bank’s confirmation that there was no surplus or shortfall in the fee year 2020/21.
- The Policy Statement reflects the proposals made in the Bank’s Consultation Paper, published in June 2021, without any changes.
Bank of England: Policy Statement Fees regime for financial market infrastructure supervision 2021/22
Financial Conduct Authority
LIBOR transition - FCA publishes Policy Statement on derivatives trading obligation (PS21/13) - 15 October 2021
The FCA has published a policy statement on LIBOR transition and the derivatives trading obligation (DTO) under the onshored Markets in Financial Instruments Regulation (UK MiFIR) (PS21/13).
The derivatives trading and clearing obligations
The DTO, set out in Article 28 of UK MiFIR, requires certain counterparties to conclude transactions in standardised and liquid OTC derivatives only on regulated trading venues. Article 32 of UK MiFIR specifies that derivatives that are subject to the DTO must be subject to the derivatives clearing obligation (DCO) under the onshored European Market Infrastructure Regulation (UK EMIR), admitted to trading on at least one regulated trading venue and be sufficiently liquid to trade only on those venues.
Finalised and proposed amendments
The Policy Statement sets out finalised amendments to the UK regulatory technical standards on the trading obligations for certain derivatives (DTO RTS), set out in the onshored Commission Delegated Regulation ((EU) 2017/241). The FCA consulted on these amendments in its Consultation Paper CP 21/22, published in July 2021, in response to changes in the liquidity profile of certain interest rate swaps, which are the subject of the DTO, as a result of interest rate benchmark reform and, specifically, the cessation of LIBOR at the end of 2021.
The amendments remove derivatives referencing GBP LIBOR and replace them with overnight indexed swaps (OIS) referencing SONIA. The FCA states that these amendments take account of the Bank’s changes to the scope of the DCO, which remove contracts referencing GBP LIBOR and include those referencing SONIA; the FCA’s updated liquidity analysis between January and July 2021 which indicates that SONIA OIS is a sufficiently liquid class of OTC derivatives to impose a DTO; and responses received to CP21/22.
The finalised amendments are set out in the Technical Standards (markets in Financial Instruments Regulation) (Derivatives Trading Obligation) Instrument 2021 (FCA 2021/36), which is at Appendix 1 of the Policy Statement, and will come into force on 20 December 2021.
Next steps
The FCA indicates that it may propose further amendments to the scope of the DTO in due course as the liquidity profile of the derivatives market continues to involve as interest rate benchmark reform progresses. It will also continue to monitor market developments in €STR and SOFR OIS and consider including products referencing these interest rates in the DTO where the class of derivatives is sufficiently liquid and the Bank has decided to include that class of derivatives in the DCO.
Policy Statement: LIBOR transition and the derivatives trading obligation (PS21/13)
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