Securities and markets regulatory news, 7 June 2021

FIG Bulletin

Recent UK and EU regulatory developments of interest to financial institutions and markets. Also check our Financial institutions general regulatory news of broader application in the Related Materials links.


Following a short break, the next update will be published on 21 June 2021.

DvP clients: FCA and PRA Dear CRO letter on counterparty credit exposure management and controls

The UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have published a letter to chief risk officers (CROs) of regulated firms on pre-settlement counterparty credit exposure management and controls for "delivery versus payment" (DvP) clients.

The regulators explain that, in recent years, they have observed a number of incidents involving defaults by clients who transact solely in cash products settled on a DvP only basis. These defaults typically happened during periods of high price volatility, and in some cases, led to material losses at firms. In late February and early March 2020, the highly liquid US Treasuries markets experienced high price volatility leading to implications for counterparty risk management practices. Consequently, the FCA and PRA reviewed the risk controls and arrangements related to DvP clients at a number of UK regulated firms.

The letter shares the regulators' observations on good practices (relevant to all trading activity with DvP clients, including electronic trading platforms) which they encourage firms to incorporate within their control framework, to more effectively monitor and mitigate counterparty credit risks in this area.

The regulators will request an update from firms outlining the steps they have taken on the back of this letter by the end of Q4 2021. They will continue to maintain a strong focus on significant loss events in the market and expect firms to conduct risk management reviews within their own organisations as such events occur.

FCA Market Watch issue 67

The FCA has published issue 67 of Market Watch, its newsletter on market conduct and transaction reporting issues. Issue 67 focuses on how the FCA uses orderbook data to conduct surveillance to identify suspected market manipulation and shares some outcomes resulting from this work.

FMSB annual report 2020

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published its annual report 2020. Among other things, it sets out the FMSB's strategic priorities for 2021.

MiFID: European Commission consults on draft Delegated Regulation on criteria for establishing activity ancillary to main business at group level

The European Commission is consulting on a draft Delegated Regulation supplementing the Markets in Financial Instruments Directive (MiFID) by specifying the criteria for establishing when an activity can be considered to be ancillary to the main business at group level.

Article 2(1)(j) of the MiFID II Directive exempts a person from the regulated activities of dealing on own account and providing investment services in relation to commodity derivatives provided that those activities are ancillary to that person's (or its group's) main business, and the main business is not the provision of investment services.

The Commission has power under Article 2(4) of the MiFID II Directive to adopt regulatory technical standards (RTS) specifying the criteria for establishing when an activity is to be considered ancillary to the main business of a group.

Directive (EU) 2021/338, which amends MiFID to help the EU's economic recovery from the COVID-19 pandemic (the Amending Directive or "Quick Fix" Directive), revisited the ancillary activity exemption and empowered the Commission to adopt a delegated regulation to replace Delegated Regulation 2017/592 (RTS 20).

Proposed changes to the ancillary activity exemption are the deletion of the overall market size test in Article 2 of RTS 20 and the introduction of the new de-minimis threshold test. The amended text does not change the established calculation methodology of the trading test and capital employed test in RTS 20. The only change to these two tests is the level of the corresponding threshold as set out in the Amending Directive.

The consultation closes on 24 June 2021.

MiFID/MiFIR market data obligations: ESMA final report

The European Securities and Markets Authority (ESMA) has published a final report on guidelines on the requirements under MiFID and the Markets in Financial Instruments Regulation (MiFIR) to publish market data on a reasonable commercial basis and to make market data available free of charge 15 minutes after publication.

The aim of the guidelines is to ensure better and uniform application of the provisions in Articles 13, 15(1) and 18(8) of MiFIR and Articles 64(1) and 65(1) and (2) of MiFID by providing clarity for market participants. They apply to national competent authorities, trading venues, approved publication arrangements, consolidated tape providers and systematic internalisers.

The guidelines will apply from 1 January 2022 to allow for an adequate period of implementation by market participants. They will be translated into all EU official languages in due course.

MiFID/MiFIR: ESMA updates Q&As on investor protection and intermediaries

ESMA has published an updated version of its Q&As on investor protection and intermediaries under MiFID and MiFIR. A new Q&A relating to information on costs and charges has been added.

MiFIR: ESMA updates data reporting Q&As

ESMA has updated Q&As on data reporting under MiFIR. It has added Q&A 18, which relates to reporting reference rates not included in RTS 23 (Supply of financial instruments reference data) and 22 (Reporting of transactions to competent authorities).

EMIR: European Commission adopts Delegated Regulation on FRANDT commercial terms for clearing services

The European Commission has adopted a Delegated Regulation supplementing the European Market Infrastructure Regulation (EMIR), to specify the conditions under which commercial terms for clearing services for OTC derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT).

The EMIR Refit Regulation introduced an obligation on clearing members and clients providing clearing services, whether directly or indirectly, (clearing service providers) to provide those services under FRANDT commercial terms. Under the EMIR Refit Regulation, the Commission is empowered to adopt a delegated act specifying the conditions under which commercial terms for clearing services of clearing service providers are to be considered to be FRANDT based on certain requirements. These are set out in an Annex to the Delegated Regulation.

The Delegated Regulation will now be subject to the scrutiny of the European Parliament and the Council of the EU. It will apply six months from its entry into force in relation to new clients. Commercial terms in contracts with existing clients will have to be brought in line with the requirements laid down in the Delegated Regulation within 12 months of its entry into force.

EMIR: ESMA updates Q&As

ESMA has updated its Q&As on the implementation of EMIR. It has amended two questions in the trade repositories section relating to access to data by the authorities and reporting of reference rates not included in Commission Implementing Regulation (EU) 2017/105. It has also added a new Q&A on reporting of the field "delivery type" for credit derivatives.

EMIR and SFTR: ESMA consults on draft guidelines on data transfer between TRs

ESMA is consulting on guidelines for the transfer of data between trade repositories (TRs) under EMIR and the Regulation on reporting and transparency of securities financing transactions (SFTR).

ESMA proposes changes to three of its existing guidelines on data transfer between TRs under EMIR, together with the addition of nine new guidelines to provide additional clarification. It also proposes a set of new guidelines under the SFTR. These build on the existing (and proposed new) EMIR guidelines.

The consultation closes on 27 August 2021. ESMA will assess the feedback provided and plans to publish the final guidelines by the end of 2021.

SFTR: ESMA updates Q&As on data reporting

ESMA has updated its Q&As on SFTR data reporting by adding a new Q&A 10 relating to reporting changes to the reference rate in a securities financing transaction.

CSDR: ESMA updates Q&As

ESMA has updated its Q&As on the implementation of the Central Securities Depositories Regulation (CSDR). It has added a Q&A in Part III (Settlement discipline) relating to the scope of cash penalties.

CSDR: ESMA's proposals regarding European Commission review

ESMA has published a letter it has sent to the European Commission setting out ESMA's proposals regarding the following important topics it considers the Commission should address under its current review of the CSDR:

  • the status of TARGET2-Securities (T2S); 
  • the arrangement for the supervision and oversight of T2S; 
  • the third country CSD (TC-CSD) recognition regime; and
  • the frequency of ESMA reports to the Commission on CSDR implementation. 

ESMA notes that it has already provided input to the European Commission through two reports (on CSD cross border services, and on internalised settlement) published in November 2020.  In the coming months, it will provide further input through the publication of two more reports on banking-type ancillary services and on the use of technological innovation by CSDs.

BMR: ESMA supervisory briefing on benchmark administrators' presence in their member states of location and outsourcing

ESMA has published a supervisory briefing to provide some guidance to national competent authorities (NCAs) in respect of the presence of a benchmark administrator in its member state of location and the outsourcing of functions or any relevant services and activities in the provision of a benchmark under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (BMR). The purpose of the supervisory guidance is to ensure a consistent application of the BMR across the EU.

It provides additional guidance on how NCAs should effectively supervise administrators, which are part of a group that may include or have links with non-EU entities, applying for authorisation or registration in their member states of location and on appropriate outsourcing arrangements, in particular where the service provider is located outside the EU.

BMR: ESMA updates Q&As

ESMA has updated its Q&As on the BMR by including a new section on EU climate transition benchmarks, EU Paris-aligned benchmarks and sustainability-related disclosures for benchmarks.

Securitisation Regulation: ESMA updates Q&As

ESMA has updated its Q&As on the Securitisation Regulation by updating three existing Q&A and adding two new questions relating to character limitations in template fields and underlying auto exposures – registration date for used cars.

Securitisation Regulation: ESMA consults on STS notifications for synthetic securitisations

ESMA has published a consultation paper on draft regulatory technical standards (RTS) implementing the amended Securitisation Regulation which requires that certain securitisations meeting pre-defined simple, transparent and standardised (STS) requirements must be reported using standardised templates for STS notification published on ESMA's website.

The consultation paper sets out ESMA's proposed draft RTS and implementing technical standards (ITS) specifying the content and the format of the standardised templates for STS notification of on-balance sheet (synthetic) securitisations. It builds on the existing technical standards for STS notification of traditional securitisations, while taking into account specific features of synthetic securitisations. The proposals also include targeted technical amendments to the STS notification templates for traditional securitisations.

The consultation closes on 20 August 2021. ESMA states that the draft RTS and ITS will be submitted to the European Commission for endorsement by 10 October 2021.

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Authored by Yvonne Clapham


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