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Legal Shorts 09.06.17 including Brexit: Euro derivatives clearing and MiFID II: ESMA final report on product governance

Published: 09 Jun 2017

Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

Claire Cummings

020 7585 1406



Brexit: Euro derivatives clearing

The Futures Industry Association has set out its concerns about the potential approach of forced relocation of euro-denominated derivatives clearing to the EU, which was recently outlined by the European Commission. The FIA states that relocation would be the most disruptive and expensive approach to overseeing third-country CCPs without improving the oversight of this activity. It opposes relocation due to grave concerns that such a policy would, among other things, fragment the euro-denominated derivatives markets, weaken the stability of the EU and raise costs for end-users. The FIA supports instead the Commission’s suggestion of recognition and enhanced supervision as being a more effective and less disruptive way to protect financial stability. 

MiFID II: ESMA final report on product governance

ESMA has published a final report on guidelines on product governance requirements under MiFID II. Under MiFID II, firms who manufacture and distribute financial instruments are required to act in clients' best interests during all the stages of the life-cycle of products and services. The guidelines aim to promote greater convergence in the implementation and application of the MiFID II requirements on product governance and mainly address the target market assessment. ESMA reports that it has made some changes to the draft guidelines (on which it consulted in October 2016), including in respect of portfolio diversification. It has also provided additional practical examples to help with application of the guidelines.

MiFID II: ESMA speech on preparing for implementation

ESMA has published a speech by Steven Maijoor, ESMA Chair, on preparation for the implementation of MiFID II. Points of interest in the speech include the following: (i) ESMA is currently working on opinions on pre-trade transparency waivers for equity instruments, and will soon start working on ESMA opinions on position limits and waivers for non-equity instruments; (ii)  ESMA is currently finalising a consultation paper on the trading obligation for derivatives; and (iii) ESMA has made significant progress over the last months with the implementation of its financial instruments reference data system (comprising the collection of reference and trading data and the transparency calculations) and the double volume cap mechanism. The transposition date for MiFID II is 3 January 2018.

MiFID II: ESMA updates Q&As on investor protection

ESMA has updated its Q&As on investor protection topics under MiFID II and MiFIR. ESMA has added 14 new Q&As covering information on costs and charges, post-sale reporting and appropriateness. ESMA first published the Q&As in October 2016.

EMIR: ESMA consults on guidelines on CCP conflict management

ESMA has published a consultation paper on guidelines relating to the management by CCPs of conflicts of interest. ESMA explains that EMIR only contains generic provisions relating to CCPs' conflict of interest management. It requires CCPs to act in the best interests of their clearing members and the clients. Therefore, CCPs need to have in place robust organisational arrangements and policies to prevent potential conflicts of interest and to solve them if they occur. ESMA believes that further guidance would be beneficial and further facilitate supervisory convergence on this area. The purpose of the guidelines is to set out the criteria CCPs should apply to avoid or mitigate the risks of conflicts of interest and to ensure a consistent implementation across CCPs. Comments are invited by 24 August 2017.

MAR: ESMA final report on draft ITS on co-operation

ESMA has published its final report on draft ITS on forms and procedures for co-operation between national competent authorities under the Market Abuse Regulation. The report sets out procedures and forms for NCAs to exchange information to help each other where necessary under MAR. ESMA explains that its report only addresses draft ITS on co-operation between NCAs. The relevant provisions of MAR also require ESMA to draft ITS on co-operation between other supervisory entities, such as ACER, NRAs defined under REMIT and ESMA itself. It states that this other set of technical standards is under finalisation. ESMA has submitted the final draft ITS to the European Commission for endorsement. The Commission has three months to decide whether to endorse the draft ITS.

FinTech update

ESMA has published its response to the European Commission's March consultation on FinTech. ESMA welcomes the Commission's initiative to take stock of the FinTech industry and makes the following points: (i) while ESMA acknowledges the potential benefits of artificial intelligence and big data analytics for automated advice and businesses, it also believes that the use of such technologies may trigger a number of concerns; (ii) ESMA reiterates its call for a specific crowdfunding EU-level regime, which would ensure investors across the EU are equally protected and enable crowdfunding platforms to operate cross-border based on a common regulatory framework; (iii) ESMA stresses that outsourcing arrangements, including to the cloud, should be implemented in a manner that complies with European legislation, including on data security and data protection rules; and (iv) ESMA strongly supports the objective of data standardisation and harmonisations.

Proposed Directive on countering money laundering by criminal law

The EU Council has been working on a proposed Directive on countering money laundering by criminal law with a view to preparing a compromise text as a basis for reaching a general approach at the Council in June 2017. The aim of the proposed Directive is to ensure a harmonised and comprehensive criminalisation of money laundering offences across the EU and also to ensure harmonisation in the level of sanctions for committing money laundering offences. The European Commission published the proposed Directive in December 2016 and has referred to it in the past as the Eurocrime Directive.

IOSCO updates its objectives and principles of securities regulation

IOSCO has published a revised version of its objectives and principles of securities regulation, which it last updated in June 2010. The document sets out 38 principles of securities regulation that constitute an agreed set of high-level standards intended to outline the basis of an effective securities regulatory system. They are based on three objectives of securities regulation, namely protecting investors, ensuring that markets are fair, efficient and transparent and reducing systemic risk. IOSCO has also published a revised version of its methodology for assessing implementation of these objectives and principles, last updated in October 2011.

Benchmarks Regulation: ESMA final report on draft RTS

ESMA has published its final report on draft RTS on co-operation arrangements with third countries under the Benchmarks Regulation. This final set of draft RTS specifies the minimum content for co-operation arrangements between ESMA and NCAs in third countries that have been designated as equivalent under the Benchmarks Regulation. ESMA explains that the draft RTS will enhance the negotiation of relevant arrangements, allowing for the use of third-country benchmarks soon after an equivalence decision has been adopted. The draft RTS will also ensure convergence on co-operation arrangements entered into by EU NCAs and third-country NCAs when they supervise administrators that apply for recognition in the EU. The co-operation arrangements will contribute to limiting risks for financial markets.

Benchmarks Regulation: ESMA publishes framework for selection

ESMA has published a methodological framework on the selection of supervised entities for mandatory contribution under the Benchmarks Regulation. The Regulation provides that, under certain circumstances, an NCA can require supervised entities to contribute to a critical benchmark. ESMA has developed the framework to promote convergence in relation to the supervision of critical benchmarks. At this stage, the framework applies to all interbank offered rates (IBORs) and to the euro overnight index average (EIONA). ESMA advises that the European Commission's list of critical benchmarks includes only EURIBOR. However, other IBOR benchmarks or the EONIA might be considered to qualify as critical in the future. Selection of the supervised entities is to be made on the basis of the size of a supervised entity's actual and potential participation in the market that the benchmark intends to measure. The framework sets out criteria on how to measure this.


Tel: + 44 20 7585 1406

Mob: + 44 7734 057 327


9 June 2017

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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