1. MIFID II
1.1 ESMA consults on equity transparency measures under MiFIR II/ MiFID III
On 10 July 2024, the European Securities and Markets Authority (ESMA) published a consultation paper containing certain draft regulatory technical standards (RTS) measures relating to the amendments to MiFIR1 and the MiFID II2.
The consultation covers proposals for:
- the amendment of the level two provisions3 specifying the requirements on equity transparency, covering technical advice to the Commission and amendments to the RTS on equity transparency (sections 3 and 4);
- a new implementing technical standard (ITS) on the content and format of the systematic internaliser (SI) notification (section 5);
- the amendment of the RTS specifying the volume cap4 (section 6);
- the amendments of the RTS specifying organisational requirements for trading venues in order to integrate the new empowerment on circuit breakers and reflecting the changes stemming from DORA5 (section 7);
- a new RTS on input/output data for the equity consolidated tape provider (CTP) (section 8); and
- proposal on flags for post-trade transparency for the transparency requirements for non-equity instruments, notably bonds (section 9).
ESMA will prepare a final report and submit to the European Commission the technical advice and the draft technical standards for RTS 1 and Sections 3 to 9 in December 2024, and the remaining mandates in March 2025.
The press release can be viewed here.
The consultation paper can be viewed here.
1.2 ESMA consults on RTS supplementing firms' order execution policies
On 16 July 2024, ESMA published a consultation paper on RTS supplementing MiFID III6 specifying the criteria for establishing and assessing the effectiveness of investment firms' order execution policies.
Article 1(4)(e) of MiFID III adds a new paragraph 10 to Article 27 of the MiFID II Directive, requiring ESMA to develop RTS on the criteria for establishing and assessing the effectiveness of investment firms' order execution policies.
In the consultation, ESMA is seeking input on:
- The establishment of an investment firm's order execution policy. This includes the classification of financial instruments in which firms execute client orders and the initial selection of venues for the order execution policy.
- The investment firm's procedures to monitor and regularly assess the effectiveness of its order execution arrangements and order execution policy.
- The investment firm's execution of client orders through own account dealing.
- How an investment firm deals with client instructions.
The consultation closes to responses on 16 October 2024. ESMA will consider the consultation feedback received. It expects to publish a final report and submit the final draft RTS to the European Commission for endorsement by 29 December 2024.
The press release can be viewed here.
The consultation paper can be viewed here.
1.3 ESMA publishes statement on transition to new post-trade transparency of OTC-transactions regime
On 22 July 2024, ESMA published a public statement on the transition to the new regime for post-trade transparency of OTC-transactions in the light of MiFIR II.
The statement complements ESMA's March 2024 statement and aims to provide further practical guidance.
Under Article 21a of MiFIR II, when a designated publishing entity (DPE) to an investment firm is party to a transaction, it is responsible for making the transaction public through an approved publication arrangement (APA). By 29 September 2024, ESMA is required to establish a public register of all DPEs, specifying their identity and the classes of financial instruments for which they act as DPEs. However, MiFIR II does not provide for a transitional regime for applying the DPE regime for post-trade transparency.
To ensure an orderly transition to the DPE regime, ESMA and the national competent authorities (NCAs) have agreed that ESMA will start publishing the DPE register on 29 September 2024, and the new DPE regime for post-trade transparency will become fully operational on 3 February 2025.
Investment firms intending to become DPEs are encouraged to register with their NCA, indicating the classes of financial instruments for which they wish to take up this function, along with other identifying information requested by the NCAs. NCAs will transmit the information regarding the DPEs to ESMA so that the information is included in the future DPE public register.
At the end of September 2024, ESMA will publish the list of DPEs based on the information received.
The public statement can be viewed here.
2. EMIR & SFTR
2.1 European Commission requests advice on fees for validation of pro-forma models (initial margin)
On 31 July 2024, the European Commission published a provisional request to the EBA for technical advice on a possible delegated Act specifying the method for determining the amount and the modalities of payment of fees for validation of pro-forma models. These fees are to be paid by financial and non-financial counterparties requiring the validation of pro-forma models under the EMIR 3.0 proposals7. The request is provisional since EMIR 3.0 has not yet entered into force. The provisional request asks the EBA to deliver its technical advice by 30 June 2025.
The provisional request can be found here.
2.2 Joint Trade Association issues statement on EMIR 3.0 effective implementation dates
On 23 September 2024, ISDA, AIMA, EBF and EFAMA (Joint Trade Association) issued a letter calling on the European Commission and the ESAs to publish a communication clarifying that market participants are not required to implement EMIR 3.0 Level 1 provisions prior to the date of application of the associated Level 2 RTS.
It is expected that the EMIR 3.0 Level 1 provisions could be adopted and published in the Official Journal of the EU before the end of 2024. Certain of the provisions of EMIR 3.0 will come into force 20 days after such publication. This means that certain of the provisions, such as the new reporting requirements, will technically be in force before the associated Level 2 RTS have been published/ come into effect.
The Joint Trade Association is of the view that firms should not be expected to implement the EMIR 3.0 requirements twice, first to comply with the Level 1 requirements and again to apply with the Level 2 RTS once they become applicable. The Joint Trade Association claims that the requirements as they stand would impose disproportionate and unnecessary costs with few benefits, along with an uncoordinated and inconsistent manner of implementation. They seek clarification from the European Commission and the ESAs on this issue as soon as possible and well in advance of the entry into force of EMIR 3.0.
The letter can be found here.
3. CENTRAL BANK OF IRELAND
3.1 Central Bank publishes Questions from Stakeholders on Individual Accountability Framework
On 1 July 2024, the Central Bank published an FAQ document in which it provides responses to questions raised by stakeholders on its Individual Accountability Framework (IAF). It addresses both the Conduct Standards and SEAR.
Conduct Standards
These FAQ address the following:
- The application of conduct standards to those CF providing incoming services on a freedom of service basis.
- Guidance on the extent to which individuals in group entities are considered to exercise a significant influence on the conduct of a subsidiary or related firm's affairs.
- The delivery of training on the IAF in situations where the CF and/or PCF roles are outsourced. SEAR These FAQ address the following:
- Whether the Central Bank will provide any guidance on the allocation of Prescribed Responsibilities to specific PCF role holders.
- The Central Bank's expectations with regard to the allocation of PR20.
- The Central Bank's expectations with regard to the extent of the application, and the allocation, of PR34.
SEAR
took effect on 1 July 2024 for credit institutions, certain investment firms, certain insurance undertakings as well as incoming branches of the forgoing.
A copy of the FAQ is accessible here.
3.2 Senior Executive Accountability Regime (SEAR) - Systems "How To" Guide
On 1 July 2024 the CBI published the "Senior Executive Accountability Regime (SEAR) Systems "How To" Guide". The Guide aims to support regulated financial service providers (RFSPs) subject to the SEAR Regulations when submitting Statement of Responsibilities and Management Responsibilities Maps through the CBI portal or the European Central Bank (ECB) Information Management System (IMAS) Portal.
The Guide can be found here.
3.3 Guidance on breach and incident reporting for MiFID firms
On 27 August 2024, the CBI published updated guidelines for all MiFID firms on the reporting of breaches and incidents. The Form template is set out in the Annex to the guidelines and is composed of the following four sections:
- Section A: Breach
- Section B: Potential Future Breach
- Section C: Operational Incident
- Section D: Further Information
The scope of the reporting of breaches is addressed in Regulation 4(2) of the Central Bank Investment Firm Regulations8 and is used for the reporting of all breaches, except for breaches relating to Client Assets, which are subject to the client asset requirements/ investor money requirements in Part 6 of the Central Bank Investment Firm Regulations.
As soon as a firm becomes aware of an incident, they should download the Form and notify the CBI by submitting the Form through the CBI portal.
The guidelines can be found here.
4. SUSTAINABILITY
4.1 ESMA issues opinion on the functioning of the EU sustainable finance framework
On 24 July 2024, ESMA published an opinion on possible long-term improvements which it believes should be made to the EU sustainable finance framework in order to improve its usability and coherence (Opinion).
The recommendations set down in the Opinion focus on improvements needed to the EU sustainable finance framework as a whole, with ESMA noting that any such revisions to the framework must address existing complexities and simplify the existing framework.
Some of the key recommendations put forward by ESMA to the European Commission in the Opinion include:
- A product categorisation system should be introduced which caters to sustainability and transition, based on a set of clear eligibility criteria and binding transparency obligations for each category.
- The EU Taxonomy should become the sole, common reference point for the assessment of sustainability and should be embedded in all sustainable finance legislation (including the SFDR, the Benchmarks Regulation etc).
- The EU Taxonomy should be completed for all activities that can substantially contribute to environmental sustainability. In addition, an EU social taxonomy should be developed.
- The definition of "sustainable investment" under the SFDR should be phased out as this definition fails to ensure a consistent minimum sustainability ambition of financial products and hampers comparability between them. In the medium term (until the EU Taxonomy is completed), the key parameters of a "sustainable investment" under the SFDR should be made more prescriptive.
- A definition of transition investments should be incorporated into the framework to provide legal clarity and support the creation of transition-related products.
- The European Commission should also consider the creation of high-quality EU labels for transition bonds and sustainability-linked bonds, based on its experience with the EU Green Bond Standard.
- All financial products should disclose some minimum basic sustainability information which should consist of a "small number of simple sustainability KPIs" which could include for example GHG emissions, Taxonomy alignment and human rights and labour rights.
A copy of the Opinion is accessible here.
4.2 CSRD is transposed into Irish law
The Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD) requires all in-scope EU large companies, all EU listed companies (except listed micro-enterprises) and certain subsidiaries/branches of non-EU companies to disclose information in their annual financial statements on the impact of their activities on people and the environment and the risks and opportunities arising from environmental and social issues.
This sustainability information must be reported from a "double materiality" basis so that investors are provided with adequate information to understand: (i) the impact that the company has on sustainability matters and (ii) how sustainability matters affect the company's development, performance and position. It must also be prepared in accordance with specific sustainability reporting standards published by EFRAG (ESRS), and where applicable, be produced in machine-readable format. The sustainability information reported by in-scope companies is subject to an assurance requirement and must be published together with the related assurance report.
The CSRD's extensive reporting obligations are introduced on a phased basis with the first group of companies being required to apply the requirements for the 2024 financial year, for financial statements published in 20259 . All other large companies with greater than 250 employees must comply for the first time in respect of the financial year 1 January 2025 (reporting in the annual financial statements published in 2026) and listed SMES must comply for the first time in respect of the financial year 1 January 2026 (reporting in the annual financial statements published in 2027) with an opt-out possible until 2028.
Companies falling within the scope of the CSRD are also required to report Taxonomy-related information in accordance with Article 8 of the Taxonomy Regulation in their sustainability statements.
On 9 July 2024, the CSRD was transposed into Irish law via the European Union (Corporate Sustainability Reporting) Regulations 2024 which were published on 9 July 2024 (Irish CSRD Regulations) and which amend the Companies Act 2014 and the Irish Transparency Regulations of 2007.
On 4 October 2024, the European Union (Corporate Sustainability Reporting) (No.2) Regulations 2024 were published (Irish CSRD Amending Regulations), making a number of technical clarifications to the Irish CSRD Regulations.
A copy of the Irish CSRD Regulations is available here.
A copy of the Irish CSRD Amending Regulations is available here.
4.3 CSRD Round-Up
European Commission publishes FAQ on CSRD
On 7 August 2024, the European Commission published an FAQ on the implementation of the CSRD, providing guidance on the interpretation of certain provisions of the legislation, including for example the scope of the CSRD, application dates, the sustainability reporting assurance framework, value chain reporting and applicable exemptions.
The FAQ also provides a limited number of clarifications on the interpretation of the first set of the ESRS.
The FAQ have been issued in the form of a draft Commission Notice and therefore may be subject to change before final adoption by the European Commission.
A copy of the FAQ is available here.
EFRAG publishes new ESRS Q&A
Separately, on 26 July 2024, EFRAG released a new set of technical explanations provided to assist stakeholders in the implementation of the ESRS.
This set of explanations comprises 23 new technical explanations provided in response to questions received by EFRAG as well as 70 other explanations previously released between January 2024 and May 2024.
A copy of the set of technical set of explanations is available here.
ESMA publishes final report on guidelines on enforcement of sustainability information
On 5 July 2024, ESMA published its final report on guidelines on enforcement of sustainability information (Guidelines) alongside a public statement on the first application of the ESRS.
Alongside this, ESMA also issued a public statement on the first application of the ESRS in which it identifies guidance on the CSRD already available or under development by the European Commission and highlights key areas of attention upon first application of the ESRS (Statement).
Under the CSRD, ESMA is mandated to issue guidelines on the supervision of sustainability reporting by the national competent authorities in EU Member States in order to build convergence on supervisory practices on sustainability reporting across the EU.
The Guidelines apply to all EU national competent authorities responsible for supervising the publication of sustainability-related information by in-scope companies under the CSRD and Article 8 of the Taxonomy Regulation.
A copy of the Guidelines and the Statement are available here.
4.1 EU Corporate Sustainability Due Diligence Directive is published in the Official Journal
On 5 July 2024, the EU Corporate Sustainability Due Diligence Directive (CSDDD) was published in the Official Journal of the European Union and must be transposed into national law by all EU Member States by 26 July 2026.
It will begin to apply on a phased basis over a period of three years with the first suite of in-scope companies10 being required to comply with its provisions from 26 July 2027.
The CSDDD will require in-scope firms to conduct due diligence to identify actual and potential human rights and environmental impact of the company's own operations, that of its subsidiaries and also certain business partners in its value chain. Such companies are also required to take steps to prevent, mitigate or minimise the extent of such impacts and to assess the effectiveness of any such measures adopted.
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