1. MIFID II
1.1 ESMA consults on rules for passporting for investment firms
On 17 November 2022, the European Securities and Markets Authority (ESMA) published a consultation paper (Consultation Paper) on the review of the technical standards under Article 34 of Directive 2014/65/EU (MiFID II). The technical standards which are the subject of the Consultation Paper became effective as and from 3 January 2018 and address the following: (i) the information to be notified by firms which wish to provide cross-border investment services without the establishment of a branch; and (ii) establish standard forms, templates, and procedures for the transmission of that information.
The main amendments proposed in the Consultation Paper will require investment firms to furnish the following additional information at the passport notification stage:
- the marketing means the firm will use in host Member States;
- the language(s) for which the investment firm has the necessary arrangements to deal with complaints from clients from each of the host Member States in which it provides services;
- the Member States in which the firm will actively use its passport, as well as the categories of clients targeted; and
- the investment firm's internal organisation in relation to the cross-border activities of the firm.
The Consultation Paper can be found here. For more information, please see Dillon Eustace' in depth briefing paper which can be accessed here.
1.2 European Commission publishes new measures to make EU capital markets more attractive
On 7 December 2022, the European Commission published new measures to amend MiFID II to make public capital markets in the European Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises (SMEs) and repealing Directive 2001/34/EC (Listing Directive).
The measures include an exemption to the MiFID II unbundling provisions for investment research on issuers whose market capitalization did not exceed EUR 10 billion during the preceding 36 months, provided that certain conditions are met. Directive (EU) 2021/338 first amended the rules on investment research, initially allowing for an exemption up to EUR 1 billion and requesting that the European Commission would review such rules by 31 July 2021 at the latest. Following that review, the new measures propose increasing from EUR 1 billion to EUR 10 billion the threshold of companies' market capitalisation below which the unbundling rules do not apply, allowing for more SMEs to benefit from a larger research coverage and increasing visibility for potential investors.
The measures also include proposals to simplify the listing and post-listing requirements to attract SMEs to the EU public markets (Listing Act Measures). These include: (i) the repeal of the Listing Directive; (ii) amendments to Regulation (EU) No 596/2014 (MAR); and (iii) amendments to Regulation (EU) 2017/1129 (Prospectus Regulation), amongst other measures.
The EC considers that the amendments to MiFID II and the Listing Act Measures are in line with the overarching objectives of MiFID II to increase transparency and reinforce investor protection.
A copy of the Proposal can be accessed here.
1.3 ESMA updates Questions and Answers on MiFID II and MiFIR market structures topics
On 16 December 2022, ESMA published updated Questions and Answers (Q&As) on MiFID II and Markets in Financial Instruments Regulation (600/2014) (MiFIR) market structure topics.
The update includes one new Q&A concerning multilateral and bilateral systems. Question 33 in Section 5 clarifies that an investment firm acting as single liquidity provider on a regulated market and/or on a multilateral trading facility can operate as a systematic internaliser (SI) but only if the two activities are fully separated.
A copy of the Q&As on MiFID II and MiFIR market structure topics can be accessed here.
1.5 Council of EU publishes texts of general approach on proposed amendments to MiFIR and MiFID II
On 20 December 2022, the Council of the EU (the Council) announced it had agreed its general approach on the proposed Regulation amending Regulation (EU) No 600/2014 (Markets in Financial Instruments Regulation or MiFIR) (Draft Regulation) and the proposed Directive amending the MiFID II Directive (Draft Directive). On 21 December 2022, the Council published the proposed compromise texts of the draft Regulation and the draft Directive.
The draft proposals include the following:
- Changes to the trade data transparency regime;
- Proposal for a single consolidation tape provider (CTP) for each asset class;
- Requirement for CT's to provide reliable consolidated data close-to-real ime
- Adjustments to the share trading / derivatives trading obligations;
- The regulatory technical standard (RTS) 27 best execution reporting requirement is being deleted;
- Clarifies the limitation on the dark trading;
- Prohibition on systematic internalisers (SIs) offering payment for retail order flow (PFOF);
- Obligation for regulated markets, investment firms and market operators to have in place arrangements to ensure they meet data quality standards set out in MiFIR; and
- Imposition of sanctions for infringements of certain new provisions in MiFIR, including mandatory contributions to CTPs.
A copy of a press release by the Council of the EU from 20 December 2022 can be accessed here.
A copy of the negotiating mandate for the Draft Regulation can be accessed here and a copy of the negotiating mandate for the Draft Directive can be accessed here.
A copy of the draft Regulation can be accessed here and the draft Directive can be accessed here.
A copy of the "I" item note can be accessed here.
2. IFD/IFR
2.1 EBA publishes final technical standards on the measurement of liquidity risks for investment firms
On 14 November 2022, the European Banking Authority (EBA) published its final report on the draft regulatory technical standards (RTS) on specific liquidity measurement for investment firms in accordance with Article 42(6) of Directive 2019/2034 (Investment Firms Directive or IFD). Under Article 42(1) of IFD, competent authorities may impose specific liquidity requirements on an investment firm based on the outcome of the supervisory review and evaluation process (SREP).
The EBA was mandated to develop the RTS under Article 42(6) to specify how the liquidity risk and elements of liquidity are to be quantified in a manner consistent with the size, structure and internal mechanism of the investment firms and nature, scope, and complexity of their activities.
The EBA developed the draft RTS to establish a homogenous approach that defines the relevant elements of liquidity risk to be considered in the context of specific liquidity requirements. The RTS focus on covering many elements that raise concerns in respect of liquidity risk and which the competent authority shall consider when assessing the materiality of those risks.
The EBA will submit the draft RTS to the European Commission for endorsement before being published in the Official Journal of the European Union (OJ). The RTS will apply from 20 days after the publication in the OJ.
A copy of the draft RTS can be found here.
2.2 Guidelines on the criteria for the exemption of investment firms from liquidity requirements in accordance with IFR become applicable
On 28 November 2022, guidelines published by the EBA on the criteria for the exemption of investment firms from liquidity requirements in accordance with IFR (the Guidelines) became applicable. The EBA published its final report on the Guidelines in July 2022.
Under Article 12(1) of IFR small and non-interconnected investment firms may be exempted from the liquidity requirements. The Guidelines consider three main elements when considering when these firms may be exempt:
- the set of investment services and activities provided by investment firms which are eligible for the exemption;
- the criteria for the exemption, and;
- guidance for competent authorities when granting and withdrawing an exemption.
The Guidelines specify the set of investment services and activities which may qualify an investment firm for an exemption. The Guidelines also provide competent authorities with additional areas to have due consideration for, such as ancillary services provided by the investment firms.
A copy of the Guidelines can be accessed here.
2.3 Guidelines on the data collection exercises regarding high earners under CRD and IFD become applicable
On 31 December 2022, guidelines published by the EBA on the data collection exercises regarding high earners under Directive 2013/36/EU (Capital Requirements Directive or CRD) and IFD (Guidelines) became applicable.
The EBA published its final updated Guidelines on the data collection exercise on high earners on 30 June 2022.
The CRD and the IFD require competent authorities to collect information on the number of natural persons, per institution and investment firm respectively, who are remunerated EUR 1 million or more per financial year, in pay brackets of EUR 1 million. The information should also include details on their job responsibilities, the business area and the main elements of the salary, bonus, longterm award, and pension contribution. Guidance is provided to ensure that the data is of the appropriate quality for deriving reliable and consistent information.
The annual collection of data regarding high earners under the updated Guidelines should start in 2023 for the financial year that ends in 2022.
A copy of the Guidelines can be accessed here.
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