Ireland: Investment Firms Quarterly Legal And Regulatory Update Period Covered: 1 October 2017 – 31 December 2017

INVESTMENT FIRMS QUARTERLY LEGAL AND REGULATORY UPDATE

MiFID II - Irish Developments

(i) Revised Central Bank Q&A on Investment Firms

On the 6 October 2017, the Central Bank of Ireland ("Central Bank") published the third edition of the Central Bank Investment Firms Q&A. This incorporates new questions ID 1026 to ID 1031:

  • In question and answers ID 1026 and ID 1027, the Central Bank confirms that it will not delay the implementation of Directive 2014/65/EU ("MiFID II Directive") into Irish law beyond 3 January next and that it expects all investment firms to be MiFID II compliant by that date;
  • In question and answers ID 1029, the Central Bank advises that it is for ESMA to determine if the existing Guidelines will remain in force after MiFID II enters into force on 3 January 2018;
  • In question and answers ID 1030, the Central Bank advises that it has published a Brexit FAQ on its website which sets out it approach in relation to investment firms seeking to re-locate to or otherwise establish operations in Ireland as a result of the UK's decision to exit the European Union; and
  • In question and answer ID 1031, the Central Bank provides some clarity on what constitutes a "local firm" for the purposes of Article 4(1)(4) of the Regulation (EU) No 575/2013 (the "Capital Requirements Regulation" or "CRR").

A copy of the Central Bank's Investment Firms Q&A can be found here.

(ii) Central Bank publishes Feedback from Consultation Paper 111 on the Second Edition of the Central Bank Investment Firms Regulations

On 20 November 2017, the Central Bank published its Feedback statement on Consultation Paper 111 ("CP 111").

CP 111 concerned certain proposed changes to the Central Bank Investment Firms Regulations (S.I. No. 60 of 2017) including certain changes arising from the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) (the "MiFID II Irish Regulations 2017"). The proposed changes are summarised below:

  • MiFID II necessitated changes to the Client Asset Regulations 2015 ("CAR");
  • Integration of CAR into the Central Bank Investment Firms Regulations in line with CP 97;
  • Integration of the Investor Money Regulations (S.I. No. 105 of 2015) as amended in 2016 ('IMR') into the Central Bank Investment Firms Regulations;
  • Integration of the Central Bank rules in relation to the capital requirements applied to market operators as set out in the Central Bank's feedback statement on CP 101; and
  • Some other consequential changes to the existing Central Bank Investment Firms Regulations to address matters arising since the first edition of the Central Bank Investment Firms Regulations became operational and certain changes arising out of MiFID II (including certain technical amendments in relation to the regulatory requirements applied to Fund Administrators).

In the Feedback Statement, the Central Bank indicates that it expects to publish the new edition of the Central Bank Investment Firms Regulations in advance of the MiFID II implementation deadline of 3 January 2018. The Central Bank has indicated that CAR and IMR will remain in force and effect until replaced by the Regulations. The final Regulations will have further technical and structural changes, including those required to align with other Central Bank Rulebooks where appropriate.

A copy of the Feedback Statement can be found here.

(iii) Central Bank publishes Consultation Paper 116 on proposed changes to inducement rules for intermediaries

On 22 November 2017, the Central Bank published Consultation Paper 116 "Intermediary Inducements Enhanced Consumer Protection Measures" ("CP 116") proposing new consumer protection measures which will apply in the area of inducements paid to financial intermediaries.

The measures will require investment firms to avoid conflicts of interest that are created by poorly designed inducement arrangements. The measures will be made through specific proposed amendments to the Consumer Protection Code 2012 (the "Code"). The proposed measures include:

Clarity on what constitutes acceptable inducements;

  • Further guidelines to provide explicitly that certain inducements are deemed to give rise to a conflict of interest and, therefore, must be avoided;
  • Clarity about what constitutes 'independence'; and
  • Guidelines concerning transparency of remuneration arrangements.

Submissions to the consultation paper, along with comments and queries, can be emailed to consumerprotectionpolicy@centralbank.ie. The closing date for submissions on 22 March 2018.

A copy of the consultation paper can be found here.

MiFID II - European Developments

(i) ESMA publishes official translations of guidelines on transaction reporting, order record keeping and synchronisation under MiFID/ MiFIR

On 2 October 2017, the European Securities and Markets Association ("ESMA") published the official EU language versions of its guidelines which relate to the submission of transaction reports and order record keeping under the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") and clock synchronisation under the MiFID II Directive.

The guidelines apply from 3 January 2018 to investment firms, trading venues, approved reporting mechanisms ("ARMs") and national competent authorities ("NCAs"). An accompanying press release states that NCAs must notify ESMA within two months whether they comply or intend to comply with the guidelines.

The official EU language versions of the guidelines can be found here.

The press release can be found here.

(ii) ESMA publishes instructions on accessing the Financial Instruments Reference Data System

On 6 October 2017, ESMA published instructions concerning the Financial Instruments Reference Data System ("FIRDS"). The ESMA instructions contain: (i) a description of the reference data files generated by the FIRDS system; and (ii) instructions on how to download the full and delta reference data files from the ESMA website.

FIRDS will cover the reference data collection and publication requirements under both MiFIR and the Regulation on Market Abuse (Regulation EU No.596/2014) ("MAR"). Under Article 27 of MiFIR, firms operating regulated markets, multilateral trading facilities, organised trading facilities and systematic internalisers are required to report reference data for instruments traded on their venues or platforms to their home regulators on a daily basis.

Copy of the instructions can be found here.

(iii) Commission Delegated Regulation exempting certain third countries' central banks from pre and post-trade transparency requirements published in the Official Journal of the EU

On 7 October 2017, Commission Delegated Regulation (2017/1799/EU) which supplements MiFIR as regards the exemption of certain third countries' central banks in their performance of monetary, foreign exchange and financial stability policies from pre- and post-trade transparency requirements was published in the Official Journal of the EU (the "OJ").

The Commission Delegated Regulation entered into force on 27 October 2017 and will apply from 3 January 2018.

A copy of the Commission Delegated Regulation can be found here.

(iv) ESMA highlights MiFID II and Brexit preparations as key issues in speech

On 9 October 2017, ESMA published a speech given by Mr. Steven Maijoor, ESMA Chair, to the European Parliament's Economic and Monetary Affair Committee ("ECON") as part of the annual hearing of the chairs of the three European Supervisory Authorities ("ESAs").

In the speech, Mr. Maijoor highlighted ESMA's work in preparation for the implementation of the MiFID II Directive and MiFIR and the United Kingdom's withdrawal from the European Union. In particular:

  • Mr. Maijoor highlighted ESMA's readiness to operate within the MiFID II framework by the implementation deadline of 3 January 2018. However, Mr. Maijoor noted that the size and complexity of the project should not be underestimated and there is a risk of potential glitches in the initial operational period;
  • Mr. Maijoor noted that ESMA has been looking closely at areas where Brexit could mean higher risks for investors and markets as a whole. ESMA is working on possible mitigating actions alongside other relevant authorities. Further ESMA has requested Brexit contingency plans from certain entities supervised by ESMA which are headquartered in London; and
  • Mr. Maijoor noted that Brexit has triggered broader political discussions as to whether the current third country equivalence model is fit for its purpose. Mr. Maijoor also welcomed the proposals whereby ESMA will be assigned certain supervisory powers over third country CCPs and central counterparties.

Concluding, Mr. Maijoor referred to one particular aspect of the capital markets union ("CMU") namely reporting and data collection. Mr. Maijoor highlighted that ESMA has put significant resources into building various reporting systems and that ECON believes that this will benefit ESMA's risk analysis work.

A copy of the speech can be found here.

(v) ESMA highlights importance of legal entity identifier for MiFID II compliance

On 9 October 2017, ESMA published a briefing on the legal entity identifier ("LEI").

The briefing explained the role which the LEI will play in the new harmonised data- reporting regime under MiFID II. The briefing also clarifies which entities can apply for an LEI and it explains why the LEI is important and how an LEI can be obtained.

In the briefing, ESMA advised that reporting entities should not delay in addressing the MiFID II reporting requirements as advance preparation will help in avoiding backlogs and will help ensure that all market participants are ready for the new regime which applies from 3 January 2018.

A copy of the briefing can be found here.

A copy of the accompanying press release can be found here.

(vi) ESMA publishes Q&As on MiFID II and MiFIR post-trading issues

On 10 October 2017, ESMA published a questions and answers document ("Q&As") on post-trading issues under the MiFID II Directive and MiFIR.

The Q&As currently includes only one question and answer. This relates to pre-waiver checks in the context of straight through processing.

A copy of the Q&As on post-trading issues can be found here.

(vii) European Commission and CFTC announce a common approach to certain derivatives trading venues

On 13 October 2017, the European Commission and the US Commodity Futures and Trading Commission ("CFTC") announced a common approach to certain derivatives trading venues.

Under the common approach, it is intended that EU counterparties will be able to comply with their trading obligations under MiFIR by executing mandated derivatives on CFTC- authorised swap execution facilities ("SEFs") or designated contract markets ("DCMs") as well as on EU authorised trading venues. Similarly, US counterparties will be able to comply with their trade execution requirement under the Commodity Exchange Act ("CEA") by executing swaps on certain EU authorised trading venues, that are exempt from SEF registration, as well as on SEFs and DCMs.

A copy of the joint statement can be found hereand a copy of the press release can be found here.

(viii) ESMA updates FAQs on transitional transparency calculations under MiFID II

On 18 October 2017, ESMA published an updated version of its FAQs on transitional transparency calculations for non-equity instruments under MiFIR and the MiFID II Directive. The FAQs address certain questions and answers as regards the transitional transparency calculations ("TTCs") and data availability. It also addresses certain questions and answers as regards the structure of the TTC files and the data included in the TTC Files.

A copy of the FAQs can be found here.

(ix) ESMA publishes nine opinions on MiFID II position limits proposed by Financial Conduct Authority

On 24 October 2017, ESMA published nine opinions on position limits that agrees with the position limits proposed by the Financial Conduct Authority ("FCA") regarding commodity derivatives under the MiFID II Directive and MiFIR. The nine opinion position limits concern london cocoa, robusta coffee, ICE white sugar, aluminium, copper, lead, nickel, tin and zinc.

ESMA also published a list of liquid contracts that will receive custom position limits and ESMA will continue to assess reports and issue opinions as needed, to ensure that the position limits are set in accordance with the MiFID II framework. A copy of the list of liquid contracts can be found here.

A copy of the accompanying press release can be found here.

(x) European Commission publishes FAQs concerning MiFID II and the interaction with third country broker-dealers

On 26 October 2017, the European Commission published guidance in the form of Frequently Asked Questions ("FAQs") concerning MiFID II and the interaction with third country broker-dealers.

In the FAQs, the European Commission states that it is aware of the concerns of MiFID firms when they seek out brokerage and research services from broker-dealers in non-EU countries. It further states in the FAQs that it understands the need to ensure that MiFID II Portfolio Managers and their Third Country Sub-Advisors "can continue to access research and execution services from third country broker-dealers".

In order to facilitate these aims, the FAQs clarify the following in respect of brokerage and research services provided by broker-dealers in non-EU countries:

  • Question and Answer 1: The European Commission is of the view that one single "bundled" payment may be made by a MiFID portfolio manager (or its third country sub- advisor) to a third country broker dealer which comprises of: (i) payments for research; and (ii) payments for execution; as long as the payment attributable to the research can be identified (as further detailed in the FAQs).
  • Question and Answer 2: The European Commission is of the view that if a separate research invoice is not issued by the third country broker-dealer (as contemplated by Article 13(9) of Commission Delegated Directive 2017/593), the MiFID firm (or its third country sub-advisor) may consult with the relevant broker dealer to determine the portion of the charge which is attributable to the research provided. The FAQs further state that the supply of and charges for those benefits or services shall not be influenced or conditioned by levels of payment for execution services.

In a related development, the U.S. Securities and Exchange Commission announced on 26 October 2017 that it was granting the so-called "no action relief" to US firms as a temporary measure for 30 months from 3 January 2018. This measure facilitates compliance with the new MiFID II research provisions while respecting the existing U.S. regulatory structure. It is intended to allow US broker dealers and other US investment firms to accept direct payments for research without it being considered investment advice.

A copy of the FAQ can be found here.

A copy of the SEC press release can be found here.

(xi) FIA and EFET publish an industry standard to facilitate position reporting under MiFID II

On 3 November 2017, the Futures Industry Association ("FIA") and the European Federation of Energy Traders ("EFET") published a common outline for commodity derivatives position reporting under MiFID II by trading venues to national competent authorities ("NCA").

A copy of the press release can be found here.

A copy of the FIA and EFET schema can be found here.

(xii) ESMA publishes consultation paper clarifying the systematic internalisers' ("SIs') quote obligations under MiFID II

On 9 November 2017, ESMA published a consultation paper concerning possible amendments to the RTS contained in Commission Delegated Regulation (EU) 2017/587. The RTS therein concerns transparency requirements in respect of certain equity and equity-like like financial instruments and transaction execution obligations in respect of certain shares on a trading venue or by an SI ("RTS 1").

The consultation paper outlines additional possible amendments to RTS 1 which will allow for more consistent and unambiguous application of its provisions, particularly as regards the concept of "prices reflecting prevailing market conditions" as referred to in RTS 1.

The consultation closes on 25 January 2018.

A copy of the consultation paper can be found here.

(xiii) Technical standards under MiFID II enter into force on 15 November 2017

The following technical standards under MiFID II entered into force on 15 November 2017 and apply from 3 January 2018:

  • Commission Delegated Regulation (EU) 2017/1946 of 11 July 2017 with regard to RTS on an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm. A copy of the Commission Delegated Regulation can be found here.
  • Commission Implementing Regulation (EU) 2017/1944 of 13 June 2017 laying down the ITS with regard to standard forms, templates and procedures for the consultation process between relevant competent authorities in relation to the notification of a proposed acquisition of a qualifying holding in an investment firm. A copy of the Commission Implementing Regulation can be found here.
  • Commission Delegated Regulation (EU) 2017/1943 of 14 July 2017 with regard to RTS on the information and requirements for the authorisation of investment firms. A copy of the Commission Delegated Regulation can be found here.
  • Commission Implementing Regulation (EU) 2017/1945 of 19 June 2017 laying down ITS with regard to notifications by and to applicant and authorised investment firms. A copy of the Commission Implementing Regulation can be found here.

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