MONTHLY REGULATORY updates
Amending Law 154(I)/2022 (link)
On 12 October 2022, the Cyprus Securities and Exchange Commission (CySEC) announced the implemented changes to the Undertakings for the Collective Investment in Transferable Securities Law (Amending Law 154(I)/2022) which transposes Directive (EU) 2021/2261 into national law.
The Amending Law 154(I)/2022 is available in Greek only and its amendments will come into force on 1 January 2023.
Investor Education on the risks of crypto-asset investment (link)
On 18 October 2022, the Cyprus Securities and Exchange Commission (CySEC) published an article from the Chairman of CySEC, Dr. George Theocharides, regarding crypto-assets and improvements in investor education on theirs risks.
The article outlines the characteristics of crypto-assets and their risks which include, but not limited to:
- Liquidity Risk: the impaired ability to sell crypto-assets when one wishes to by exchanging it with money (without losing money in the process).
- Volatility Risk: high volatility of prices resulting in the investors' large losses, due to the lack of tangible value. The value and price of crypto-assets depends exclusively on supply and demand, which can be highly speculative.
- Cyber-risks: technical and operational risks in the crypto-assets market most prominently those of cyberattacks, failure of IT and blockchain infrastructures, and loss of the access codes by the crypto-asset owner. The high complexity and technicality of the blockchain system, the very innovative nature of the business models and the lack of information can cause investors to easily fall prey to fraudsters.
- Fraud: Since there is currently no comprehensive regulation for crypto-assets at national or international level, in many jurisdictions, crypto-assets are not regulated by the existing regulations, and as a result, there is no coverage for investors by the usual redress systems or deposit protection schemes in the event of financial insolvency of a custodian wallet provider.
The article also mentions the importance of safeguarding of investors' interests via education. Regulators across the world, including CySEC, develop and disseminate educational materials around the key schemes and provide information to the public through various communication channels in order to reach investors, particularly the young and vulnerable groups of the population. In addition, CySEC enriched the educational content of its dedicated Financial Education Portal and committed to communicate with all interested parties to enhance the protection of retail investors through its new launch, the Investor Protection Campaign, which aims to create awareness and spread the right messages via social media.
Investment Services & Regulated Markets
MiFIR & MiFID
ESMA will not perform the November SI and liquidity calculations for bonds due to quality issues (link)
On 19 October 2022, the European Securities and Markets Authority (ESMA) announced that will not publish the November results of the quarterly assessment of bond liquidity and the systematic internaliser (SI) regime data for bonds due to data quality issues detected in the reported data of an approved publication arrangement (APA) affecting potentially a material number of bonds.
Consequently, all bonds for which no liquidity assessment has been published, should be deemed illiquid as from 16 November 2022 until the application of the next liquidity assessment. ESMA will resume the publications as of 1 February 2022 covering data from 1 October to 31 December 2022.
ESMA issues an opinion on product intervention measure on futures taken by Germany (link)
On 26 October 2022, the European Securities and Markets Authority (ESMA) published an opinion on a product intervention measure on futures with additional payment obligations taken by the German Federal Financial Supervisory Authority, known as BaFin.
ESMA, through the opinion, wants to encourage National Competent Authorities (NCAs) to monitor futures with additional payment obligations in their respective markets to assess whether similar risks for retail investors as those identified by BaFin could arise there.
NCAs may take product intervention measures in accordance with Article 42 of Regulation (EU) No 600/2014. Not less than one month before a measure is intended to take effect, an NCA has to notify ESMA and the rest of the NCAs of the details of its proposed measure and the related evidence, unless there is an exceptional case where it is necessary to take urgent action.
ESMA, in accordance with Article 43 of Regulation (EU) No 600/2014, performs a facilitation and coordination role in relation to such product intervention measures taken by NCAs and following the receipt of a notification from an NCA of its proposed measure, adopts an opinion on whether the proposed measure is justified and proportionate. If ESMA considers that the taking of a measure by other NCAs is necessary, it must state this in its opinion.
Corrigendum to Commission Delegated Regulation (EU) 2022/1299 supplementing MiFID II with regard to RTS specifying the content of position management controls by trading venues (link)
On 27 October 2022, a Corrigendum to Commission Delegated Regulation (EU) 2022/1299 supplementing MiFID II with regard to RTS specifying the content of position management controls by trading venues was published in the Official Journal.
The Corrigendum corrects drafting errors in Article 2(1) and in footnote 4 of the Delegated Regulation.
Anti-Money Laundering (AML) & Financial Crime
Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations (link)
On 7 October 2022, the Financial Action Task Force (FATF) announced the conduct of a fourth round of mutual evaluations for its members based on the FATF Recommendations (2012) and the Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (2013), as amended from time to time. The document presents the procedures that are the basis for that fourth round of mutual evaluations.
The scope of the evaluations will concern two inter-related components:
- The technical compliance that will assess whether the necessary laws, regulations or other required measures are in force and effect, and whether the supporting AML/CFT institutional framework is in place.
- The effectiveness that will assess whether the AML/CFT systems are working, and the extent to which the country is achieving the defined set of outcomes.
Jurisdictions under Increased Monitoring (link)
On 21 October 2022, the Financial Action Task Force (FATF) announced that has been actively working with jurisdictions under increased monitoring in order to address strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing.
The FATF and FATF-style regional bodies (FSRBs) continue to work with those jurisdictions as they report on the progress achieved in addressing their strategic deficiencies. The FATF calls on these jurisdictions to complete their actions plans expeditiously and within the agreed timeframes. The FATF welcomes their commitment and will closely monitor their progress.
The jurisdictions that had their progress reviewed by the FATF since June 2022 are: Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Jordan, Mali, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Soudan, Turkey, United Arab Emirates and Uganda.
Following review, the jurisdictions with strategic deficiencies that were added to the list are: Democratic Republic of the Congo, Mozambique and Tanzania, and jurisdictions that were removed are: Nicaragua and Pakistan.
Several countries have not yet been reviewed by the FATF or their FSRBs but will be in due course.
Call for Input on the 2017 Joint Guidelines to prevent the abuse of fund transfers for ML/TF purposes (link)
On 21 October 2022, the European Banking Authority (EBA) published a Call for Input on the 2017 Joint Guidelines to prevent the abuse of fund transfers for ML/TF purposes ('FTR Guidelines'). EBA's aim is to identify practical issues that financial institutions experience when complying with the existing FTR Guidelines.
EBA will use the information from this Call to inform its review of the existing FTR Guidelines. It may also inform other policy outputs.
Participants can submit their responses by 15 November 2022.
Revision of R25 and its Interpretive Note - Public Consultation (link)
On 25 October 2022, the Financial Action Task Force (FATF) announced that is conducting a review of Recommendation 25 and its Interpretive Note (R.25/INR.25) on the transparency and beneficial ownership (BO) of legal arrangements. The FATF is also considering amendment of the definition of beneficial ownership in the glossary to provide more clarity regarding legal arrangements.
The FATF aims to improve R.25 and its Interpretive Note to better meet its stated objective to prevent the misuse of legal arrangements for money laundering or terrorist financing.
The FATF will welcome comments on the following:
- Are FATF proposals adequate to mitigate the risk of misuse of legal arrangements and to ensure access to BO information?
- Are proposals clear and are there any issues which need further clarification or that should be addressed in guidance?
- What is the expected impact of the proposals on legitimate activity? In particular, what are the challenges for implementation?
The responses which will include proposals on the draft amendments to R.25 may be submitted till 6 December 2022.
Report from the Commission on the assessment of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities (link)
On 27 October 2022, the European Commission published a report to the European Parliament and the Council on the assessment of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities.
The 2022 Commission supranational risk assessment (SNRA) is the third one and is made up of two documents: the report and a detailed Staff Working Document, which read together provide a comprehensive mapping of risks on all relevant areas, as well as the necessary recommendations to counter them.
This report analyses the present ML/TF risks and proposes comprehensive action to address them, assesses the degree to which the recommendation of the Commission for mitigating measures in the 2019 report have been implemented and evaluates the remaining risks. It also benefits from the work and stakeholder consultation process that led to the adoption of the Commission's Action Plan of 2020 and the legislative AML/CFT package proposed in 2021.
The Commission will continue monitoring the implementation of the recommendations of this SNRA and report again, in principle by 2024, considering the changes that may be introduced to the current EU regulatory framework. The review will also assess how EU and national measures affect risk levels.
ACER and ESMA enhance cooperation to strengthen oversight of energy and energy derivative markets (link)
On 18 October 2022, the European Securities and Markets Authority (ESMA) and the EU Agency for the Cooperation of Energy Regulators (ACER) announced that they are strengthening their cooperation to further improve information exchange and avoid potential market abuse in Europe's spot and derivative markets.
Regulatory oversight of potential market abuse of the trading in energy and financial products falls under the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) and the Market Abuse Regulation (MAR). ESMA and ACER established a Joint Task Force to reinforce their cooperation and enhanced coordination in respect of the exchange of data and knowledge among their staff and respective national authorities, in order to support the investigations and enforcement so that the rules are applied with vigour and in a convergent and holistic way.
This Joint Task Force will also provide a framework for broadening cooperation on the monitoring of energy and energy derivatives markets as in the current energy crisis, high prices and price volatility occurs and vigilance in detecting market manipulation and insider trading is very important to ensure confidence.
Additional areas for ESMA and ACER's cooperation have been considered for the future, such as the case of the possible new LNG benchmark which is under consideration by the European Commission and the enhanced monitoring of risks in energy markets with the aim of helping preserve financial stability in EU markets.
Commission Delegated Regulation (EU) 2022/1959 supplementing the MAR with regard to regulatory technical standards setting out a contractual template for liquidity contracts for the shares of issuers whose financial instruments are admitted to trading on an SME growth market (link)
On 18 October 2022, the Commission Delegated Regulation (EU) 2022/1959 supplementing the Market Abuse Regulation (MAR) with regard to regulatory technical standards (RTS) setting out a contractual template for liquidity contracts for the shares of issuers whose financial instruments are admitted to trading on an SME growth market was published in the Official Journal.
The Delegated Regulation set out the requirements that parties to a liquidity contract should comply with the aim to make sure that such persons are not engaging in market manipulation. Particularly, the annex to the RTS contains a contractual template focusing at ensuring that issuers listed on SME Growth Markets and investment firms are treated fairly, while safeguarding market integrity and maintaining flexibility.
The Delegated Regulation will come into force on 7 November 2022.
Other Regulatory Updates
Crypto-assets and their risks for financial stability (link)
On 4 October 2022, the European Securities and Markets Authority (ESMA) published a paper regarding crypto-assets and their risks for financial stability. Prior to publishing this document, ESMA had been following closely for several years the crypto-assets and their increased attention due to their rapid growth that resulted as well at the increased interest around their implications for the traditional financial system.
The document outlines the latest understanding of crypto-assets' risks and transmission channels to financial markets. Although some sources of risk are well understood from traditional markets, others are novel and linked to the product design, technological development or the complex infrastructures built around crypto-assets. Even though at present crypto-assets are small in size and their interlinkages to traditional markets are limited, in the future this situation may change rapidly as market growth can occur suddenly and risk transmission is already possible through various channels.
ESMA is in the process of including crypto-assets in its risk monitoring framework and will continue analysing material risk issues as they emerge, while regulations such as the EU proposal "Markets in Crypto-Assets" (MiCA) should be implemented swiftly to mitigate existing identified risks.
Consumer Duty - information for firms (link)
On 5 October 2022, the Financial Conduct Authority (FCA) published a new webpage on Consumer Duty - information for firms.
The FCA following the receipt of queries which are relevant for the wider market from firms, created the webpage to help on the implementation of the Duty by covering the below areas:
- October implementation plans: Although the FCA did not expect firms to have fully scoped all work required to embed the Duty by the deadline, end of October 2022, but expected firms to have set out how they will do so in time to ensure timely implementation. The plans of the firms were awaited by the October deadline to be sufficiently developed to provide both firms' governing bodies and the FCA with assurance that the expectations set out in the Duty had been carefully considered and would be implemented for new and existing products by 31 July 2023.
- Consumer Duty Board Champions: The FCA expected firms to have a champion at Board (or equivalent governing body) level, specifically an Independent Non-Executive Director, where possible, or an appropriate Board level in larger organisations with group structures. Few firms asked if the Board champion role could be fulfilled by the Chair itself, instead of an Independent Non-Executive Director. The FCA in general envisaged in FG22/5 the Board champion working with the chair stating though that this would depend on the characteristics of the firm and its Board. The FCA also expected firms to apply judgement and set up the role in a way that is effective for their organisation.
- Definition of closed products: The Duty will come into effect on 31 July 2023 for new and existing products or services that are open for sale or renewal and on 31 July 2024 for closed products or services. Where existing customer can continue to make payments under the existing product terms this would still be considered closed, as long as the product or service is not open to new customers. It is the firms' decision to consider each product and determine whether is closed.
The FCA will keep updating this webpage.