Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.
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The European Central Bank has published the transcript of an interview relating to the preparatory work of banks and supervision in the light of Brexit. Points of interest in the interview include the following: (i) the ECB is striving to ensure that euro area banks are being proactive and well prepared and is in discussions with them and following the progress of their preparations; (ii) affected banks should prepare themselves for a hard Brexit and are not as far advanced as the ECB would like them to be. Of the banks that have indicated an interest in relocating operations to the euro area, a number of the larger banks have made progress in their planning. However, the ECB has not yet seen many final decisions on how these and other banks want to organise their business; (iii) the ECB will oppose any race to the bottom on supervisory standards; (iv) the ECB will counter attempts to create "empty shells" in the euro area at the licensing phase; and (v) the ECB has set up a project to prepare for Brexit and is in close contact with national supervisors to understand how they are preparing for the operational impact of Brexit.
MiFID II: ESMA publishes responses to its consultation on trading obligations
ESMA has published the responses to its June 2017 consultation on trading obligations for derivatives under MiFIR. Respondents include the Investment Association, AIMA, the European Banking Federation, the Managed Funds Association, the Wholesale Markets Brokers' Association and ISDA. ESMA is required to develop RTS specifying the derivatives that should be subject to the trading obligation under Article 32(1) of MiFIR. ESMA plans to use the feedback received to finalise the draft RTS and submit them to the European Commission for endorsement.
MiFID II: EC adopts Delegated Regulation on the treatment of package orders
The European Commission has adopted a Delegated Regulation supplementing MiFIR with regard to the treatment of package orders. Article 9(1)(e) of MiFIR provides for a waiver from pre-trade and post-trade transparency requirements for packaged orders where certain conditions apply. However, use of that waiver is more limited when the package order is considered liquid. The Delegated Regulation establishes a methodology for determining those package orders for which there is a liquid market. The next step will be for the EU Council and the European Parliament to consider the Delegated Regulation. If neither of them objects, it will enter into force 20 days after its publication in the Official Journal. It will apply from 3 January 2018.
Credit rating endorsement guidelines to be updated
ESMA has published the responses to its April 2017 consultation on updating its 2011 guidelines on the application of the endorsement regime under the CRA Regulation. Respondents include the European Association of Credit Rating Agencies. Article 21(3) of the CRA Regulation requires ESMA to issue and update guidelines on the application of the endorsement regime specified under Article 4(3). Article 4(3) sets out the conditions in which a credit rating agency established in the EU may endorse a credit rating issued in a third country. ESMA intends to finalise the updated guidelines and publish a final report in the fourth quarter of 2017, with a view to the guidelines entering into force on 1 June 2018.
FCA decision holding director responsible for failings in firm’s systems and controls upheld
An FCA decision to ban a director for failing to exercise due skill, care and diligence in managing the group’s business has been upheld. The case is of interest as it highlights the reasoning of the FCA in holding the director individually responsible, which includes the following: (i) the director dominated the board and set the tone and culture of the group, notwithstanding the role of the board in approving the group’s strategy and business plans, and was therefore a controlling influence; (ii) although the board had overall responsibility for the firms’ systems and controls, the director had a role relating to the effectiveness of those systems and it fell to him to take the lead in addressing any difficulties or deficiencies; and (iii) the director failed to appreciate that it is the responsibility of senior management to understand compliance issues, notwithstanding the role of the firms’ compliance officer to address the system failures.
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18 August 2017