Ireland: Investment Firms Quarterly Legal And Regulatory Update: 1 January 2023 - 31 March 2023

1. MIFID II

1.1 ESMA and NCAs to look at marketing of financial products

On 16 January 2023, the European Securities and Markets Authority (ESMA) commenced the launch of a common supervisory action (CSA) with national competent authorities (NCAs) on the application of the disclosure rules under Directive 2014/65/EU (MiFID II) with regard to marketing communications across the EU. The CSA will take place throughout 2023.

The CSA will involve the review by competent authorities whether marketing communications (including advertisements) are fair, clear and non-misleading and how firms select the target audience for the marketing communications, especially in the case of riskier and more complex investment products. Furthermore, it will provide competent authorities with an opportunity to collect information about possible 'greenwashing practices' observed in marketing communications and advertisements.

ESMA is also aware that younger, less experienced investors, are particularly vulnerable when they operate online. For this reason, the CSA will also closely consider marketing and advertising by firms through distribution channels including apps, websites, social media and collaborations with affiliates such as influencers

ESMA believes this initiative, will help fulfil ESMA's mandate on building a common supervisory culture among NCAs to promote sound, efficient, and consistent supervision throughout the EU.

ESMA's press release on the commencement of the CSA is available here.

1.2 The European Commission publishes Commission Delegated Regulations amending RTS 1 and RTS 2 under MiFIR

On 17 January 2023, the European Commission published delegated regulations to amend Commission Delegated Regulation (EU) 2017/587 (RTS 1) (the RTS 1 Amending Delegated Regulation) and Commission Delegated Regulation (EU) 2017/583 (RTS 2) (the RTS 2 Amending Delegated Regulation).

Regulation (EU) No 600/2014 (Markets in Financial Instruments Regulation or MiFIR) introduced comprehensive pre trade and post trade transparency requirements with regard to trades in both equities (such as shares) and non-equities (such as bonds and derivatives). RTS 1 and RTS 2 contain the regulatory technical standards setting out the pre and post trade transparency requirements for investment firms (and trading venues) in respect of equity instruments and non-equity instruments respectively.

The Amending Delegated Regulations provide for certain amendments to RTS 1 and RTS 2 aimed at improving and harmonising post trade transparency reports, and the data contained within them, to improve and further harmonise data quality of post-trade transparency reports, as well as to increase the level of pre-trade and post-trade transparency.

If the European Parliament and the Council of the European Union (EU) do not object to the Amending Delegated Regulations, they will enter into force on the twentieth day following their publication in the Official Journal of the EU. Certain provisions of Article 1 of the Amending Delegated Regulations will apply from 1 January 2024 to allow for investment firms to implement the required changes to their systems to comply.

The RTS 1 Amending Delegated Regulation can be accessed here.

The RTS 2 Amending Delegated Regulation can be accessed here.

1.3 ESMA consults on post-trade transparency

On 19 January 2023, ESMA published a consultation paper on post-trade transparency (Consultation Paper). This consultation comes nearly five years since MiFIR and Directive 2014/65/EU (MiFID II) entered into force and following review of related Level 2 measures.

RTS 1 and RTS 2 further specify the MiFIR pre- and post-trade transparency requirements for equity instruments and non-equity instruments respectively. RTS 1 and RTS 2 Amending Delegated Regulations were published by the European Commission on 17 January 2023 (see section [1.1] above for details).

This Consultation Paper proposes ESMA's Level 3 guidance, in the form of a manual, on the post-trade transparency fields. The Level 3 Guidance provides clarification on certain matters relating to the RTS 1 and RTS 2 Amending Delegated Regulations (see section [1.1] above for details).

The areas tackled in the manual are: (i) the scope of instruments and transactions subject to post-trade transparency, (ii) the relevant entities in charge of the reporting and publication of post-trade transparency information, (iii) when post-trade transparency information has to be made public: real-time vs. deferred publication, (iv) which post-trade transparency information has to be made public, i.e. reporting fields and flags, and (v) the common aspects as well as the differences between the post-trade transparency regime and the transparency calculations in relation to the scope of instruments and transaction.

The manual includes:

• legal references of Level 1 (MiFIR / MiFID II);
• legal references of Level 2 (RTS 1 and RTS 2);
• legal references of Level 3 (Opinions/Guidelines);
• guidance included in previously published Q&As; and
• proposed new Level 3 guidance in the form of a manual on the post trade transparency fields

ESMA has invited respondents to submit feedback on the Consultation Paper by 31 March 2023. ESMA will then publish a final report and manual after both the 3-month scrutiny period of RTS 1 and 2 by the Parliament and Council and the Consultation period.

The consultation paper can be accessed here.

The reply form for responding to the consultation is available here.

1.4 European Commission considers total ban on Inducements as part of Retail Investment Strategy

On 24 January 2023, European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, Mairead McGuinness, re-introduced speculation that the European Commission, is considering a total ban on inducements under the MiFID II framework for financial advisors. Such a proposal would have a major influence on remuneration policies within the financial advice industry and mark a clear shift towards upfront fees for financial advice to retail investors.

In a letter dated 21 December 2022, Commissioner McGuinness defends the concept of an inducements ban, citing that many consumers do not understand the impact of inducements on their investments, and therefore increased disclosure requirements would be insufficient. Rather, prohibition of inducements would "likely increase innovation and competition in the sector, to the benefit of both retail investors and the industry."

This view has been echoed in the opening remarks by Commissioner McGuinness at the European Parliament's ECON Committee on 24 January 2023. In those remarks, Commissioner McGuinness referred to the new Retail Investment Strategy and mentioned that the [Commission] is taking an "ambitious approach" including looking at the issue of inducements by financial advisors. Ms. McGuinness referred to the recent Retail Investment Study which shows that products where inducements are paid are on average 35 percent more expensive for retail investors than investment products where no inducements are paid.

While admitting that the Netherlands cannot be considered representative of the investment landscape across all EU member states, Ms. McGuinness acknowledged that the ban there has led to a "a shift towards less expensive and more diverse products, resulting in better value for money for retail investors".

Currently, neither the Commission or the Council have published an official mandate for the introduction of a ban on inducements, but it could introduce it within its Retail Investment Strategy which is expected to be published in April 2023. Mairead McGuinness' speech can be found here.

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