Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.
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MiFID II: ESMA agrees FCA position limits
ESMA has published nine opinions on limits which will apply to the net position a person can hold in commodity derivatives under MiFID II. The opinions agree with the position limits proposed by the FCA and concern contracts on cocoa, coffee, white sugar, aluminium, copper, lead, nickel, tin and zinc. ESMA has also published a list of liquid contracts that will receive a bespoke position limit. ESMA will continue to assess the notifications received and issue opinions to ensure that the position limits are set in accordance with the MiFID II framework.
MiFID II: ESMA publishes responses to consultation on suitability requirements
ESMA has published the responses it has received to date to its July 2017 consultation paper on guidelines on certain aspects of the suitability requirements under MiFID II. Respondents include AIMA, the European Fund and Asset Management Association and the European Banking Federation. ESMA expects to publish a final report, together with final guidelines, in the first or second quarter of 2018.
FCA report on regulatory sandbox
The FCA has published a report regarding its regulatory sandbox, including its reflections on how the sandbox has met its objectives over the first year of its operation. The sandbox aims to create a "safe space" in which businesses can test innovative products, services, business models and delivery mechanisms in a live environment while ensuring that consumers are appropriately protected. The report sets out: (i) an overview of the first year of operation and the participants involved in the sandbox; (ii) the impact on the market of the sandbox and the changes to firms' business models arising from participation in the sandbox; and (iii) the limitations faced by participants. The FCA states that it will use the insights set out in the report to inform any future sandbox developments and its broader regulatory work, including policymaking and supervisory activities.
EC 2018 work programme
The European Commission has published its work programme for 2018, which sets out a focused list of 26 key initiatives across the Commission's ten political priorities, 15 intended withdrawals or modifications of pending proposals and 66 priority pending proposals. The Commission’s priorities include: (i) completing the CMU; (ii) completing the banking union; and (iii) creating a permanent and accountable European Minister of Economy and Finance.
European System of Financial Supervision reform
The EU Council Presidency has invited ministers to express their views on the European Commission’s legislative proposals to reform the European System of Financial Supervisions (ESFS). With a view to providing guidance to the Council's preparatory bodies in taking forward work on the legislative proposals, the Presidency invites ministers to express their views on the following three issues: (i) whether co-legislators should take this opportunity to prepare the ESFS for potential future challenges; (ii) which elements of the ESFS review package should be prioritised to address short-term challenges; and (iii) to what extent should the powers of the European Supervisory Authorities (ESAs) be strengthened with a view to creating a more integrated supervisory framework. The Commission has invited the European Parliament and the Council to agree on the legislative proposals as a matter of urgency, to ensure that they enter into force before the end of the current legislative term in 2019.
ESMA updates Q&As on prospectuses
ESMA has updated its Q&Ss on prospectuses and changes since the last version include: (i) the deletion of Qu.27 on convertible or exchangeable securities; (ii) the amendment of Qu.29 on conversion or exchange of non-transferable securities and exemption from publishing a prospectus; (iii) the amendment of Qu.31 on exemption for admission to trading; (iv) the amendment of Qu.32 on exemptions from the obligation to publish a prospectus; and (v) the amendment of Qu.44 regarding the obligation to publish a prospectus for admission of securities to trading on a regulated market.
EC report on SFTs
The European Commission has published a report on progress in international efforts to mitigate the risks associated with securities financing transactions (SFTs), including the Financial Stability Board's recommendations for haircuts on non-centrally cleared SFTs and the appropriateness of those recommendations for EU markets. The report discusses FSB recommendations aimed at mitigating SFT risk and provides a brief assessment of European SFT markets. The Commission concludes that to a large extent, the FSB recommendations on SFTs have been addressed in the EU through the adoption of SFT Regulation and specific provisions in financial services legislation and guidelines. Therefore, there does not seem to be a need for further regulatory action at this stage.
FCA fines firm for transaction reporting failings under EMIR
The FCA has published the final notice regarding the fine it issued to Merrill Lynch International for failing to report 68.5 million exchange traded derivative transactions between 12 February 2014 and 6 February 2016. The fine is for breaches of Article 9 of EMIR and also of Principle 3 (Management and control) of the FCA's Principles for Businesses. The fine is of interest as it is the first enforcement action against a firm for failing to report details of trading in exchange traded derivatives under EMIR. Commenting on the final notice, Mark Steward, FCA Executive Director of Enforcement and Market Oversight, stated that the FCA will continue to take appropriate action against any firm that fails to meet transaction reporting requirements.
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26 October 2017