1.1 ESMA presents the results of the 2021 CSA on MiFID II product governance requirements

On 8 July 2022, the European Securities and Markets Authority (ESMA) published a public statement presenting the results of common supervisory action (CSA) on product governance requirements under Directive 2014/65/EU (MiFID II).

The main findings of the results are that while firms generally define a target market for their products within the ESMA guidelines on MiFID II product governance requirements, it is often treated as a formalistic level and is done at an insufficiently granular level with the use of unclearly defined terms.

ESMA also clarified that the definition of target market does not necessarily provide a compatible distribution strategy that enables the product to reach the identified target market.

ESMA also noted the following further areas for improvement:

  • Firms to perform scenario analysis as required under Article 9(10) of the MiFID II Delegated Directive;
  • Firms to perform a charging structure analysis as required under Article 9(12) of the MiFID II Delegated Directive;
  • Firms to review products (ESMA note that such reviews are not always performed frequently enough and with an adequate scope to verify if the financial instrument remains consistent with the needs, characteristics and objectives of the target market); and
  • Firms to ensure that information is exchanged between manufacturers and distributors.

Based on the results of the CSA, ESMA concluded that a review of its guidelines on MiFID II product governance requirements was required in order to address the most relevant areas where a lack of convergence has emerged and to complement the guidelines with relevant examples of good practices that emerged from the CSA. ESMA also wish to align the guidelines to the revised MiFID II Delegated Directive on the topic of sustainable finance and to the revised MiFID II in the context of the Commission's Capital Market Recovery Package, and to incorporate the advice received from ESMA's Advisory Committee on Proportionality.

The ESMA public statement can be access here.

1.2 ESMA updates MiFID II Q&As on market structures

On 15 July 2022, ESMA published an updated version of its Questions & Answers (Q&As) on market structures topics under MiFID II and the Regulation (EU) 600/2014 (the Markets in Financial Instruments Regulation or MiFIR). The updates include two Q&As concerning algorithmic trading.

The first Q&A clarifies that orders that are executed through functionalities which additionally to routing orders to trading venues offer automated managing of the order should be in the scope of the MiFID II definition of algorithmic trading. The second Q&A clarifies that firms using third party systems offering algorithmic trading functionalities are ultimately responsible for compliance with the relevant requirements in Article 17 of MiFID II.

On 23 September 2022, there was a further update to the Q&As to clarify that trading venues may set instrument-level trading hours for a specific sub-set of financial instruments (or for a specific financial instrument) provided those trading hours are made public and communicated to market participants.

A copy of the ESMA Q&A on MiFID II and MiFIR market structure topics can be accessed here.

1.3 Implementing Regulation on format for third-country firms and supervisors reporting under MiFID II is published in OJ

On 15 July 2022, the European Commission published, in the Official Journal of the European Union (OJ), Commission Implementing Regulation (EU) 2022/1220 laying down implementing technical standards (ITS) with regard to the format in which branches of third-country firms and competent authorities have to report information referred to in Article 41(3) and (4) of MiFID II.

The ITS will came into force on 4 August 2022, on the twentieth day following its publication in the OJ.

A copy of the ITS can be accessed here.

1.4 ESMA updates MiFIR data reporting Q&As

On 19 July 2022, ESMA published its updated version of its Questions & Answers (Q&As) on MiFIR data reporting. The updates are included in a new Section 19 on reporting of emission allowances under MiFIR.

The updated Q&As can be accessed here.

1.5 ESMA updates Q&As on MiFID II and MiFIR transparency topics

On 5 September 2022, ESMA published updated Questions and Answers (Q&As) on MiFID II and MiFIR transparency topics.

ESMA has amended Question 3 in Section 9 on third country issues to clarify that transfers of financial instruments between two branches of the same legal entity or between a branch and its parent company are not subject to the transparency and transaction reporting requirements.

A copy of the Q&As on MiFID II and MiFIR transparency topics can be accessed here.

1.6 Public Register for the Trading Obligation for derivatives under MiFIR

On 15 September 2022, ESMA published an updated Public Register for the Trading Obligation for derivatives under MiFIR.

The update to Public Register has removed the USD LIBOR index and the GBP LIBOR index from Table 1: Fixed-to-float single currency interest rate swaps.

A copy of the Public Register can be accessed here.

1.7 ESMA publishes Final Guidelines on MiFID II Suitability Requirements

On 23 September 2022, ESMA published its Final Report on Guidelines on certain aspects of the MiFID II suitability requirements (Guidelines).

The main amendments to the existing guidelines which were published by ESMA in 2018 have been to address the introduction of the obligation imposed on in-scope firms under Commission Delegated Regulation (EU) 2021/1253 to consider the sustainability preferences of clients when conducting their suitability assessments.

The Guidelines address the obligations to help clients understand the concept of sustainability preferences, to collect information from clients on their sustainability preferences, to assess such sustainability preferences and identify suitable products that fulfil the sustainability preferences of the client and to provide training to staff on sustainability topics and keep appropriate records of the sustainability preferences of each client. The Guidelines also incorporate some good and poor practices identified in ESMA's 2020 CSA on suitability.

The Guidelines will be translated into the official languages of the EU and published on ESMA's website. The publication of the translations will trigger a two-month period during which national competent authorities must notify ESMA on whether they comply or intend to comply with the Guidelines. The Guidelines will apply six months after the date of the publication on ESMA's website in all EU official languages.

The Final Report containing the Guidelines is accessible here.


2.1 Minister for Finance signs into national law finalised EU prudential rules for investment firms

On 5 July 2022, the Minister for Finance, Paschal Donohue, signed three Statutory Instruments which amend the European Union (Investment Firms) Regulations 2021 and the European Union (Markets in Financial Instruments) Regulations 2017 which together transpose Directive (EU) 2019/2034 (Investment Firms Directive or IFD) into Irish law and give effect to Regulation (EU) 2019/2033 (the Investment Firms Regulation or IFR). Together the regulations amend the Central Bank Act, 1971 enabling Class 1 Firms to apply for re-authorisation as credit institutions.

The Statutory Instruments can be access here, here and here.

2.2 EBA and ESMA publish Joint Final Guidelines in respect of the supervisory review and evaluation process (SREP)

On 21 July 2022, the European Banking Authority (EBA) and ESMA published joint final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under IFD (SREP Guidelines). The SREP Guidelines set out common process and criteria for the assessment of the main SREP elements. The EBA also published the final draft Regulatory Technical Standards (RTS) on Pillar 2 add-ons for investment firms on that date (please see Section 2.3 below).

The SREP Guidelines are formed around the following main elements; (i) business model analysis; (ii) assessment of internal governance and investment firm-wide controls; (iii) risks to capital and capital adequacy; and (iv) liquidity risk and liquidity adequacy.

The SREP Guidelines incorporate a common scoring framework which differentiates between specific risks and concerns in order to allow for consistency and comparability. The procedures and methodologies for SREP follow the principal of proportionality and differ based on four distinct categories of investment firms.

A copy of the SREP Guidelines can be accessed here.

2.3 EBA final report setting out draft RTS on Pillar 2 add-ons for investment firms under IFD

On 21 July 2022, the EBA, in consultation with ESMA, published a final report on draft regulatory standards (RTS) relating to Pillar 2 add-ons for investment firms under IFD. The EBA notes that investment firms authorised under MiFID II vary greatly in terms of size, business model, risk profile, complexity, and interconnectedness. The draft RTS apply to class 2 and class 3 investment firms.

The RTS focus on the own funds requirement under Article 40(1)(a) of IFD where the investment firm is exposed to risks or elements of risks, or poses risks to others that are material and are not covered or sufficiently covered by minimum own funds. The draft RTS propose several indicative qualitative measures which will support competent authorities in their identification, assessment, and quantification of material risks.

The draft RTS were developed in conjunction with the SREP Guidelines (see above) to allow for consistent application by competent authorities across the EU.

The EBA will submit the draft RTS to the European Commission for endorsement before being published in the OJ.

A copy of the draft RTS can be accessed here.

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