Securities and Markets

Issue 1141 / 6 January 2022

Overview

  • PRIIPs Regulation and UCITS Directive - Proposed amending Regulation and Directive published by the Council of the EU and in the OJ
  • Tier 2 CCPs - ESMA publishes assessment report
  • MiFID II - ESMA publishes Final Report on Guidelines on appropriateness and execution-only requirements

European Commission

MiFIR - European Commission adopts Commission Delegated Regulation on derogation criteria for DRSPs - 17 December 2021

The European Commission (the Commission) has adopted Commission Delegated Regulation (C(2021) 9430 final) supplementing the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR) which specifies supervisory fees, the procedure of fines and penalties and derogation criteria for data reporting service providers (DRSPs). The supervision of DRSPs has been transferred from national competent authorities to the European Securities and Markets Authority (ESMA) from January 2022.

The Commission sets out that, from 1 January 2021, the European System of Financial Supervision (ESFS) Omnibus Regulation ((EU) 2019/2175) has given ESMA direct authorisation and supervisory powers over DRSPs, except for those approved reporting mechanisms and approved publication arrangements that, by way of derogation from MiFIR due to their limited relevance to the internal market, are subject to authorisation and supervision by a national competent authority.

The final Regulation follows the Commission’s consultation (Ares(2021)4887758) and ESMA’s three final reports on the draft Regulation, published in March 2021 and August 2021, respectively.

The Council of the EU and the European Parliament will now scrutinise the Regulation and, if approved, it will enter into force three days after its publication in the Official Journal of the European Union.

Commission Delegated Regulation (EU) …/… supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council by specifying criteria for derogation of the principle that approved publication arrangements and approved reporting mechanisms are supervised by the European Securities and Markets Authority (C(2021)0 9430 final)

Updated webpage

  1.  

PRIIPs KID - Commission Delegated Regulation EU/2021/2268 published in OJ - 20 December 2021

The European Commission (the Commission) has published in the Official Journal of the European Union (OJ) Commission Delegated Regulation EU/2021/2268 amending the regulatory technical standards (RTS) laid down in Commission Delegated Regulation EU/2017/653 on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs KID Delegated Regulation). It is based on the draft RTS that the European Supervisory Authorities (ESAs) submitted to the Commission in February 2021.

The Commission adopted the draft Commission Delegated Regulation in September 2021. The European Parliament and the Council of the EU decided not to object to it earlier in December 2021.

EU/2021/2268 will enter into force on 9 January 2022. It will apply from 1 July 2022, except Article 1, Point 13, which have applied from 1 January 2022.

Commission Delegated Regulation EU/2021/2268

Council of the European Union

PRIIPs Regulation and UCITS Directive - Proposed amending Regulation and Directive published by the Council of the EU in the OJ - 17 and 20 December 2021

The Council of the EU (the Council) published, on 17 December 2021, the text of its proposed Regulation (2021/0215(COD) (PE-CONS 71/1/21) amending the Packaged Retail and Insurance-Based Investment Products (PRIIPs) Regulation (1286/2014/EU), as regards the extension of the transitional arrangement for management companies, investment companies and persons advising on, or selling, units of undertakings for collective investment in transferable securities (UCITS) and non-UCITS. The Council also published, on the same day, the text of its proposed Directive (2021/0219(COD) (PE-CONS 72/1/21) amending the UCITS Directive (2009/65/EC) in relation to the use of key information documents (KIDs) by UCITS management companies.

The Council adopted both texts on 9 December 2021. The European Parliament voted to adopt the proposed Regulation and Directive on 23 November 2021, following the first readings.

The Regulation and Directive were published in the Official Journal of the European Union (OJ) on 20 December 2021 and entered into force on 21 December 2021. EU member states must adopt and publish the measures necessary to comply with the Directive by 30 June 2022 and apply those measures from 1 January 2023.

Regulation EU/2021/2259 of the European Parliament and of the Council amending Regulation EU/1286/2014 as regards the extension of the transitional arrangement for management companies, investment companies and persons advising on, or selling, units of undertakings for collective investment in transferable securities (UCITS) and non-UCITS

Directive EU/2021/2261 of the European Parliament and of the Council amending Directive 2009/65/EC as regards the use of key information documents by management companies of undertakings for collective investment in transferable securities (UCITS)

European Securities and Markets Authority

Tier 2 CCPs - ESMA publishes assessment report - 17 December 2021

The European Securities and Markets Authority (ESMA) has published an assessment report (ESMA 91-372-1945) dated 16 December 2021 on systemically important third-country central counterparties (Tier 2 CCPs) established in the UK and the risks they may pose to the financial stability of the EU.

Under the European Commission’s time-limited decision on the equivalence between the EU and UK regimes for CCPs, the recognition of UK CCPs is temporary and valid until 30 June 2022. The assessment was conducted by ESMA under the mandate in Article 25(2c) of the European Market Infrastructure Regulation (648/2012/EU) (EMIR) and in line with the methodology for assessing a third country CCP published in July 2021. ESMA has also published a statement (ESMA 91-372-1913) summarising its conclusions.

The assessment reports identifies three Tier 2 CCPs that are of substantial systemic importance to the financial stability of the EU or one or more of its member states: (i) LCH Ltd SwapClear for products denominated in EUR and PLN; (ii) ICEU CDS for products denominated in EUR; and (iii) ICEU STIR for products denominated in EUR. ESMA does not recommend derecognising any of the CCPs or their services at this stage, given that the costs would outweigh the benefits. Instead, it proposes that relevant EU institutions and authorities consider measures to mitigate the risks relating to the clearing services that these CCPs provide and which have been identified as being of substantial systemic importance for the EU. More specifically, ESMA’s proposed measures include:

  • considering adoption of appropriate incentives for reducing the size of the EU’s exposure to Tier 2 CCPs;
  • revising the mechanism of comparable compliance set out under Article 25a of EMIR to ensure appropriate powers of ESMA over Tier 2 CCPs;
  • examining whether to require Tier 2 CCPs to comply directly with all or part of the provisions embedded in the CCP Recovery and Resolution Regulation ((EU) 2021/21) (CCPRRR);
  • granting ESMA the power to approve the recovery plans of Tier 2 CCPs;
  • providing a new mandate in the CCPRRR to allow ESMA to negotiate an additional memorandum of understanding on recovery and resolution with third country authorities;
  • requiring third country authorities to consult with ESMA before it adopts any measures in relation to the resolution of a Tier 2 CCP that could have a potentially adverse impact on EU market participants; and
  • granting ESMA the power to request from Tier 2 CCPs, and the third country authorities which supervise them, notification prior to their imposing any restriction, suspension, or termination of access to EU clearing members.

ESMA has also published the European Systemic Risk Board’s (ESRB’s) response to its consultation on the report, in which the ESRB confirmed that it agreed with ESMA’s main findings.

ESMA Assessment Report under Article 25(2c) of EMIR (ESMA91-372-1945)

Public statement (ESMA91-372-1913)

Press release

Redacted ESRB response to ESMA’s consultation on determining the degree of systemic importance of LCH Ltd and ICE Clear Europe or some of their clearing services

CSDR - ESMA publishes Statement on buy-in provisions - 17 December 2021

The European Securities and Markets Authority (ESMA) has published a Statement (ESMA 70-156-5153) on its approach to the implementation of buy-in provisions under Article 7 of the Central Securities Depositories Regulation (909/2014/EU) (CSDR) and Articles 21 to 28 of Commission Delegated Regulation (EU) 2018/1229 which contains Regulatory Technical Standards (RTS) on settlement discipline.

The Statement follows ESMA’s letter (ESMA 70-156-4963) to the Commission asking the co-legislators to consider a delay in the mandatory buy-in regime, as the Commission’s legislative proposal for the CSDR Review is not expected to be published before Q1 2022 and may include changes to the buy-in regime. The Statement notes that the co-legislators have now agreed on an amendment to CSDR that will decouple the date of application of the provisions dealing with the buy-in regime from those in relation to penalties and reporting.

The CSDR settlement discipline regime is scheduled to start applying on 1 February 2022. The amendment will allow ESMA to develop draft technical standards proposing to postpone the date of application of the buy-in regime while retaining the application, and supervision, of the other requirements, particularly the settlement failure reporting and cash penalties regimes, as planned. ESMA highlights that national competent authorities should not prioritise supervisory actions in relation to the application of the CSDR buy-in regime and should encourage central counterparties to continue applying the buy-in rules currently implemented until the revised CSDR buy-in regime applies.

ESMA Statement: Supervisory approach on the implementation of the CSDR buy-in provisions (ESMA70-156-5153)

Press release

MiFID II - ESMA publishes Final Report on Guidelines on appropriateness and execution-only requirements - 3 January 2022

The European Securities and Markets Authority (ESMA) has published a Final Report on Guidelines covering certain aspects of the appropriateness and execution-only requirements under the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II). The Guidelines aim to enhance clarity and convergence in the application of these requirements. The Final Report follows ESMA’s Consultation Paper on the matter, published in January 2021.

The MiFID II appropriateness and execution-only framework (under Article 25(3) and (4) of MiFID II and Articles 55 to 57 of the Commission Delegated Regulation EU/2017/565) requires investment firms to ask clients for information on their knowledge and experience to assess whether the investment service or product envisaged is appropriate for them, and to issue a warning if it is deemed inappropriate. The execution-only framework provides an exemption from this assessment if certain conditions are met, including that the firm issues a warning to the client.

The Guidelines cover a number of areas, including:

  • the internal arrangements required to understand clients and products;
  • the information to be provided to clients about the purpose of the appropriateness assessment;
  • matching clients with appropriate products; and
  • the effectiveness of warnings.

The Guidelines will apply from six months following the date of their publication on ESMA’s website.

ESMA Final Report: Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements (ESMA35-43-2938)

Press release​​​​​​​

MAR - ESMA publishes Final Report on revised delayed disclosure Guidelines - 5 January 2022

The European Securities and Markets Authority (ESMA) has published a Final Report on revisions to its guidelines on delay in the disclosure of inside information and interactions with prudential supervision under the Market Abuse Regulation (596/2014/EU) (MAR) (the Guidelines). The Final Report follows ESMA’s Consultation Paper on the revisions, published in July 2021, and ESMA is proceeding with the revised Guidelines as consulted on.

The Guidelines are intended to assist issuers in conducting their assessment as to whether they meet the conditions to delay inside information in accordance with MAR. The amendments add certain cases to the list of legitimate interests of issuers for delaying public disclosure of inside information.

The revised Guidelines will apply two months after the publication of their translation in the official languages of the EU.

ESMA Final Report: Review of MAR Guidelines on delay in the disclosure of inside information and interactions with prudential supervision (ESMA70-159-4966)

Press release

UK Parliament

BMR - The Critical Benchmarks (References and Administrators' Liability) Act 2021 published - 17 December 2021

The Critical Benchmarks (References and Administrators' Liability) Act 2021 was published on legislation.gov.uk on 17 December 2021. The Act received Royal Assent on 15 December 2021.

The Act supports the effective operation of the powers granted to the FCA under the Financial Services Act 2021 to oversee the wind-down of a critical benchmark. In particular, the Act provides legal certainty as to how contractual references to a critical benchmark should be treated where the FCA exercises powers under the UK Benchmarks Regulation (EU) 2016/1011 (BMR) to provide for the continuity of an unrepresentative critical benchmark.

The Critical Benchmarks (References and Administrators' Liability) Act 2021

Webpage

Financial Conduct Authority

COVID-19 - FCA statement on supervision of commodity derivatives position limits - 20 December 2021

The FCA has published a statement on its supervision of commodity derivatives position limits. This follows the FCA’s publication of a Supervisory Statement in December 2020 setting out its approach to operating the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) markets regime after the end of the EU withdrawal transition period.

The FCA’s approach under this Supervisory Statement included a change to its supervisory and enforcement actions for commodity derivative position limits in light of evidence of potential constraints on market functioning highlighted during the COVID-19 pandemic. Until 1 January 2022, the FCA committed to refrain from supervisory or enforcement action for positions that exceeded limits where the position was held by a liquidity provider to fulfil its obligations on a trading venue.

In the absence of any adverse effects from this relief, the FCA confirms that it will extend this approach while the scope of the regime is considered under HM Treasury’s Wholesale Markets Review. The FCA will review and reconsider its approach if there are indications of market abuse.

Supervisory Statement

Press Release

  1.  

PRIIPs extension for UCITS funds - FCA publishes statement - 29 December 2021

The FCA has published a statement on the extension for undertakings for collective investment in transferable securities (UCITS) funds from the requirements of the retained EU law version of the Packaged Retail and Insurance-Based Investment Products (PRIIPs) Regulation (1286/2014/EU) (UK PRIIPs Regulation).

Parliament legislated in the Financial Services Act 2021 to extend the UCITS exemption in the UK PRIIPs Regulation by 5 years, from 31 December 2021 to 31 December 2026. This allows UCITS funds offered to UK retail investors to continue to supply either a PRIIPs key information document or a UCITS key investor information document.

The FCA intends to make consequential amendments to the UK PRIIPs Regulatory Technical Standards and the associated Handbook guidance to reflect this extension. The FCA will not take enforcement action against firms for breach of Article 14(1) of the UK PRIIPs Regulation if they provide a key investor information document or a non-UCITS retail schemes key investor document in accordance with Article 14(2) until the date the amendments to the Regulatory Technical Standards and the Handbook Guidance take effect.

FCA Update for firms on PRIIPs RTS Article 18 and related rules

  •  

LIBOR transition - FCA publishes four notices - 1 January 2022

The FCA has published a set of notices made under the UK Benchmarks Regulation (EU/2016/1011) (UK BMR), relating to the transition from the London Interbank Offered Rate (LIBOR). The notices are as follows:

  • the final version of the Article 23C notice on permitted legacy use by supervised entities, which took effect on 1 January 2022. This allows Article 23A LIBOR benchmarks to be used in all legacy contracts except cleared derivatives;
  • the final version of the Article 23D notice on the requirements for determining the Article 23A LIBOR benchmarks (the synthetic methodology), which took effect on 1 January 2022. This allows the Article 23A LIBOR benchmarks to be calculated on a synthetic basis that does not rely on submissions from panel banks;
  • a notice to ICE Benchmarks Administration (IBA) of modifications to the UK BMR in respect of the Article 23A LIBOR benchmarks, which took effect on 1 January 2022 and follows a notice given to the IBA in November 2021; and
  • an additional notice to IBA of proposed modifications to the UK BMR relating to the application of the UK BMR and the onshored versions of delegated regulations made under the UK BMR, as set out in the November 2021 notice.

The FCA has also published a statement summarising the effects of these notices, and notices previously made under its powers under UK BMR, and providing an overview of the status of LIBOR transition as of 1 January 2022:

  • synthetic yen LIBOR will cease at the end of 2022 and the FCA does not guarantee the availability of synthetic sterling LIBOR beyond that date; and
  • the remaining five US dollar LIBOR settings will continue to be calculated using panel bank submissions until mid-2023. Firms should focus on converting their legacy US dollar LIBOR contracts by mid-2023.

The FCA highlights that new use of either synthetic LIBOR or US dollar LIBOR is now prohibited (the latter with limited exceptions).

Article 23A Benchmarks Regulation - Notice of permitted legacy use by supervised entities

Article 23D Benchmarks Regulation - Notice of requirements

Annex 4 Benchmarks Regulation - Notice of modifications

Annex 4 Benchmarks Regulation - Additional notice of proposed modifications

Press release

ICE Benchmarks Administration

LIBOR transition - IBA announces launch of GBP SONIA Spread-Adjusted ICE Swap Rate - 22 December 202

ICE Benchmark Administration (IBA) has announced the launch, which took place on 4 January 2022, of the GBP Sterling Overnight Index Average (SONIA) Spread-Adjusted ICE Swap Rate for use as a benchmark in financial contracts and financial instruments by licensees. The launch follows the successful publication by IBA of GBP SONIA Spread-Adjusted settings on an indicative, ‘Beta’, basis since May 2021.

The GBP SONIA Spread-Adjusted ICE Swap Rate is published for tenors ranging from one to 30 years and is determined in line with the methodology proposed by the Working Group on Sterling Risk-Free Reference Rates in its paper, ‘Transition in Sterling Non-Linear Derivatives referencing GBP LIBOR ICE Swap Rate (ISR)’.

Press release