The European Securities and Markets Authority (“ESMA”) published guidance affecting industry professionals as well as retail investors. It updated its frequently asked questions and answers concerning the application of the European Markets Infrastructure Regulation (“EMIR”) to OTC derivatives, central counterparties and trade repositories. It also updated its guidelines on the diversification of collateral received by Undertakings for Collective Investment in Transferable Securities (“UCITS”).
For retail investors, ESMA summarized the changes made by updates to the Markets in Financial Instruments Directive, known as MiFID II, and how those changes affect retail investors.
ESMA has also requested comment on a number of matters, including:
Regulatory technical standards for the clearing of Interest Rate Swaps and Credit Default Swaps. Comments on either consultation should be submitted on or before September 18, 2014.
Regulatory and implementing technical standards and Technical Advice that would implement the Market Abuse Regulation framework, which will go into effect in July 2016. The proposed standards address products, venues and trading techniques, and transparency and governance issues. Comments should be submitted on or before October 15, 2014.
The calculation of counterparty risk by UCITS which enter into OTC derivative transactions and which must be centrally cleared under EMIR. Comments should be submitted on or before October 22, 2014.
Together with the European Banking Authority (“EBA”) and the European Insurance and Occupational Pensions Authority (“EIOPA”), ESMA addressed the responsibilities financial institutions bear when placing their own financial products with consumers. The regulators reminded firms of their responsibility to comply with rules governing conflicts of interest, remuneration, provision of advice and suitability, and appropriateness of products. Respecting consumer needs and demands, as well as providing investors and customers with appropriate information, are also compulsory for financial institutions. Joint Agency Press Release.
In a related statement, ESMA separately warned of the potential risks associated with contingent convertible instruments (“CoCos”), instruments issued by financial institutions to comply with their prudential requirements. Because of the complex nature of CoCos, they may not be appropriate for retail investors. ESMA Statement.
ESMA, the EBA, and the EIOPA also jointly requested comment on draft regulatory technical standards on risk concentration and intra-group transactions within financial conglomerates. The standards would clarify which risk concentrations and intra-group transactions within a financial conglomerate should be considered as significant. In addition, the standards would provide some supervisory measures for coordinators and other relevant competent authorities when identifying types of significant risk concentration and intra-group transactions, their associated thresholds and reports, where appropriate. Comments should be submitted on or before October 24, 2014.
The International Swaps and Derivatives Association published a briefing note on implementing Article 77(1) of the E.U. Bank Recovery and Resolution Directive (“BRRD”) which requires Member States to ensure that there is “appropriate protection” for title transfer financial collateral arrangements and set-off and netting arrangements from (1) the transfer by a resolution authority of some, but not all, of the rights and liabilities that are protected under a title transfer financial collateral arrangement, a set-off arrangement or a netting arrangement by exercise of a power contemplated, for example, by Article 63(1)(d) of the BRRD; and (2) the modification or termination by a resolution authority of protected rights or liabilities by exercise of a power contemplated, for example, by Article 64(1)(f) of the BRRD.