MONTHLY REGULATORY updates
C483 - ESMA & EBA Joint Guidelines on the assessment of the suitability of members of the management body and key function holders (link)
Through Circular C483, CySEC informs Cyprus Investment Firms ('CIFs') that the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published on July 2, 2021 their revised final joint Guidelines on the assessment of the suitability of members of the management body and key function holders, translated in all official languages of the EU.
The Guidelines apply from 31st December 2021 and have been adopted by CySEC, who has incorporated them into its supervisory practices and regulatory approach.
C484 - Registration of RAIFs with the CySEC RAIF Register (link)
Through Circular C484, CySEC informs the Regulated Entities/External Managers of Registered Alternative Investment Funds that Circular 285 has been revoked and replaced and brings their attention to the following:
- The Directive for the registration and deregistration of RAIFs in the RAIFs register has been amended (DI124-01).
- The External Managers will be informed whether they grant authorisation for the registration of RAIF within one month from the date of submission of the information provided for in section 138(2) of the "AIF Law".
- The External Managers shall ensure that each RAIF under their management, comply with all their obligations under the AIF Law, so that they can operate as RAIFs.
- In order for CySEC to examine an application for a RAIFs registration the application must be accompanied by the required documents which are clearly stated in the Circular.
- Finally, when producing the regulation or the constitutional documents of the RAIF the External Managers must consider the provisions of the AIF Law.
Investment Services & Regulated Markets
MiFIR & MiFID
Delegated Regulation as regards the adjustment of the relevant threshold for the notification of significant net short positions in shares (link)
On 11 January 2022, Commission Delegated Regulation (EU) 2022/27 of 27 September 2021 amending Regulation (EU) No 236/2012 of the European Parliament and of the Council as regards the adjustment of the relevant threshold for the notification of significant net short positions in shares was published in the Official Journal of the European Union.
In early 2020, after the significant downward price spirals affecting issuers from all sectors across financial markets due to the substantial selling pressure and unusual volatility stemming from the global outbreak of Covid-19, the European Securities and Markets Authority (ESMA) lowered the relevant notification threshold for significant net short positions in shares, in order to improve both ESMA's and regulators' monitoring activity of such positions.
ESMA and the European Commission agreed to set permanently the notification threshold at 0,1% (and each 0,1% above that).
This Regulation will enter into force on the twentieth day following that of its publication (31 January 2022).
ESMA requires to report net short positions between 0.1% and 0.2% during transition (link)
On 26 January 2022, the European Securities and Markets Authority (ESMA) published a statement in order to explain in detail how to report net short positions (NSPs) between 28 and 31 January 2022 when the reporting threshold changes from 0.2% to 0.1%.
The old reporting threshold's (0.2%) last day of application will be relative to Friday 28 January 2022, with NSPs to be reported to RCAs by 15.30 of the following trading day, i.e., Monday 31 January 2022.
Since 31 January 2022 onwards, position holders will be required to report when their NSPs in shares exceed or are equal to 0.1% of the issued shared capital and each 0.1% above that.
NSPs between 0.1% and 0.2% will have to be reported on the day of application of the 0.1% reporting threshold, even where they were entered into ahead of that date. The purpose of this is to give Relevant Competent Authorities the full picture of NSPs above the new threshold, which otherwise would be incomplete.
Reporting entities are solicited to read the statement which provides in addition for practical examples on when and how to report.
ESMA consults on the review of MiFID II Suitability Guidelines (link)
On 27 January 2022, the European Securities and Markets Authority (ESMA) consulted on certain aspects of suitability requirements under the Markets in Financial Instruments Directive (MiFID II), in order to update its guidelines following amendments to MiFID II in relation to sustainability.
The assessment of suitability is one of the most important protections for investors under MiFID II and is applied to the provision of all types of investment advice (whether independent or not) and portfolio management.
The main amendments introduced are the following:
- Collection of information from clients on sustainability preferences - Firms are required to collect information from clients on their preferences relating to the different types of sustainable investment products to what extent they want to invest in these products.
- Assessment of sustainability preferences - Once the firm has identified a range of suitable products for client, in line with the criteria of knowledge and experience, financial situation and other investment objectives, it shall identify, in a second step, the product(s) that meet the client's sustainability preferences.
- Organisational requirements - Firms are required to give staff appropriate training on sustainability topics and keep appropriate records of the sustainability preferences of the client (if any) and any updates of these preferences.
The consultation will close on 27 April 2022. ESMA will consider the feedback received to the consultation in Q2 2022 and expects to publish a final report in Q3 2022.
Anti Money Laundering (AML) & Financial Crime
European Commission adopts Delegated Regulation amending list of high-risk third countries (link)
On 7 January 2022, the European Commission adopted a new Delegated Regulation relative to third countries which have strategic deficiencies in their AML/CFT regimes that constitute significant threats to the financial system of the Union ('high risk third countries').
The Delegated Regulation makes the following changes to Delegated Regulation (EU) 2016/1675:
- Burkina Faso, Cayman Islands, Haiti, Jordan, Mali, Morocco, the Philippines, Senegal, and South Sudan are added to the list of third countries that are identified as having strategic AML and CTF deficiencies.
- The Bahamas, Botswana, Ghana, Iraq and Mauritius are removed from the list of countries identified as having strategic AML and CTF deficiencies.
The Delegated Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
EBA launches today 'EuReCA', the EU's central database for anti-money laundering and counter-terrorism financing (link)
On 31 January 2022, the European Banking Authority (EBA) launched its central database for anti-money laundering and counter-terrorist financing (AML/CFT).
This European reporting System for material CFT/AML weaknesses, EuReCA, will be central to coordinating efforts by competent authorities and the EBA to prevent and counter money laundering and terrorist financing (ML/TF) risks in the Union.
EuReCA will hold information on material weaknesses in individual financial institutions in the EU that competent authorities have identified. Competent authorities will also be reporting the measures they have imposed on financial institutions to rectify those material weaknesses.
The EBA will use information from EuReCA to inform its view of ML/TF risks affecting the EU financial sector. It will also share information from EuReCA with competent authorities as appropriate, to support them at all stages of the supervisory process and, in particular, should specific ML/TF risks or trends emerge. On this subject, EuReCA will act as an early warning tool, which will help competent authorities to act before ML/TF risk crystallise.
EuReCA has been established based on provisions in article 9a (1) and (3) of the EBA Regulation and in the draft Regulatory Technical Standards (RTS) on a central database on AML/CFT in the EU that were published on the EBA's website on 20 December 2021.
EuReCA will not start collecting personal data until the approval of the draft RTS by the European Commission.
ESMA publishes Guidelines on delayed disclosure under MAR (link)
On 5 January 2022, the European Securities and Markets Authority (ESMA) published its Final Report on the amendment of the Market Abuse Regulation (MAR) Guidelines on delayed disclosure in relation to prudential supervision. The Guidelines have included certain cases to the list of legitimate interests of issuers for delaying public disclosure of inside information.
The amended Guidelines explain the following:
- In case of redemptions, reductions and repurchases of own funds subject to supervisory authorisation, the institutions have a legitimate interest to delay the disclosure of inside information until the prudential competent authority has authorised the transactions.
- There is a legitimate interest for the institution to delay the disclosure of the draft SREP decision informally communicated to an institution, until that decision becomes final following the completion of the decision-making process of the prudential competent authority.
- In respect of the content of the SREP decisions, the P2R are expected to be considered as inside information and as highly likely to be price sensitive whereas P2G may only be inside information. Examples of situations where price sensitivity is expected are when:
- the difference between the P2G and the institution's level of capital is not minor and is likely to involve a major reaction by the institution, such as a capital increase and
- the institution's P2G is not in line with market expectations, so a price impact can be expected.
The Guidelines will be applicable two months after the publications of translations.
ESMA issues 2021 Report on accepted market practices under MAR (link)
On 18 January 2022, the European Securities and Markets Authority (ESMA) published its Annual Report on the application of accepted market practices (AMPs) in accordance with the Market Abuse Regulation (MAR).
The number of liquidity contracts and the volumes traded under the AMPs has been reduced for the four NCAs that have them in place (CNMV, CMVM, CONSOB and AMF) from June 2020 to June 2021, with only a marginal number of contracts operational under the Italian and Portuguese AMPs.
The Report will be submitted to the European Commission (EC) and will help ESMA's ongoing work in fostering supervisory convergence in the application of MAR and also contribute to ESMA's goal of developing an EU outcome-focused supervisory and enforcement culture.