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
[email protected]
www.cummingslaw.com

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Advocate-General opines on interpretation of MiFID

The Advocate General, Campos Sánchez-Bordona, has delivered an opinion in relation to whether the reception or transmission of an order that relates to a portfolio management is an investment service for the purposes of MiFID. The Advocate General proposed that the ECJ should rule that the brokering of a portfolio management agreement, in circumstances such as those under consideration, does not constitute an investment service for the purposes of MiFID. He argued that the use of the term “orders” in the description of the MiFID activity of the reception and transmission of orders in relation to one or more financial instruments meant that the activity must relate to transaction(s) involving particular or specific financial transactions.

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MiFiD II: Systematic Internalisers

ESMA has published a letter it has written to the European Commission relating to MiFID II and systematic internalisers. ESMA has become aware that some investment firms that currently operate broker-crossing networks might be seeking to circumvent MiFID II requirements by setting up networks of interconnected SIs and other liquidity providers, which allow SIs to cross third party buying and selling interests via matched principal trading, or other types of back-to-back transactions. The arrangements currently focus on trading in shares, but could potentially be extended to other financial instruments. ESMA has encouraged the Commission to consider using its regulatory tools (including the power to adopt delegated acts to clarify MiFID II definitions) to ensure that trading takes place on regulated platforms.

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MiFID II: Revised draft ITS on position reporting

ESMA has published revised draft ITS on position reporting under MiFID II. ESMA originally published the draft ITS in December 2015 but subsequently identified a number of technical amendments that it deems necessary for the correct functioning of the position reporting of commodity derivatives. The changes are highlighted in the revised version of the ITS, which ESMA has sent to the European Commission for endorsement.

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FCA speech on good conduct regulation

The FCA has published a speech by the FCA Chair on what makes good conduct regulation. Key points of interest include: (i) financial conduct is as much about behaviour as it is about processes, thus creating a regime where firms self-regulate to promote good finance is the ideal to aim at; (ii) there is more debate to be had in distinguishing between “ex ante” and “ex post” regulation i.e. the FCA seeks to anticipate the more material things that are more likely to go wrong, and to pass rules, conduct supervision, or occasionally to ban practices; (iii) in relation to Brexit, regulators should not seek to hide from change rather than co-opt it; and (iv)  the problem of where the regulatory perimeter lies is exacerbated by the increasing use of technology and it is noted that the more detailed regulation is, the greater the challenge of keeping it all current.

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EC speech on international financial system

The European Commission has published a speech by Valdis Dombrovskis on the merits of upholding a strong international financial system. In the speech, Mr Dombrovskis highlights the advantages of international regulatory co-operation and a common approach to financial regulation. He suggests that the effect of financial centres having very different rules would mean: (i) increased exposures to risks imported from jurisdictions with less stringent rules; (ii) increased expense for global financial institutions in complying with different legal requirements; and (iii) greater incentives for financial institutions to engage in regulatory arbitrage.

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EMIR: ESMA updates Q&As

ESMA has updated its EMIR Q&As to include a new answer in relation to transition to the revised RTS on reporting, which will become applicable on 1 November 2017. The Q&A clarifies that the reporting entities are not obliged to update all the outstanding trades upon the application date of the revised technical standards and that they are required to submit the reports related to the old outstanding trades only when a reportable event takes place (e.g. when the trade is modified). In addition, the Q&A explains how those reports will be validated by the Trade Repositories.

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ESMA launches new Q&A tool

ESMA has published a webpage for a new Q&A tool, which aims to provide a means for ESMA to collect and address questions from stakeholders publicly. Questions can be asked relating to the application of a legislative act within ESMA’s remit or on any of ESMA’s guidelines or opinions. The webpage contains an overview of all Q&As developed by ESMA per legislative act and sets out instructions on submitting questions to ESMA.

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FCA discussion paper on UK equity markets

The FCA has published a discussion paper on the effectiveness of primary markets in which it seeks views on whether: (i) the current division between standard and premium listing is still relevant, in particular in relation to overseas issuers and exchange traded funds; (ii) the current regime is effective in supporting the growth of science and technology companies; and (iii) there is a role for a multilateral trading facility in the UK, and whether measures should be taken to support greater participation in retail debt markets. Comments are invited by 14 May 2017.

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FCA consultation on listing regime

The FCA has also published a consultation paper on proposed enhancements to the listing regime to address issues that have emerged from the FCA’s interactions with issuers and their advisers on transactions. The FCA proposals include: (i) clarifications to the premium listing eligibility requirements for commercial companies in LR 6; (ii) changes to the concessionary routes to premium listing, including the introduction of a new concessionary route for certain types of property company; (iii) changes to the profits test in the context of classifying transactions for premium listed issuers; and (iv) a proposal to remove the presumption of suspension for reverse takeovers to extend to all issuers with a premium or standard listing of securities but not to shell companies. Comments are similarly invited by 14 May 2017.

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MLD4 consultation

The Joint Committee of the European Supervisory Authorities (i.e. the EBA, EIOPA and ESMA) (ESAs) has published a consultation paper on draft RTS on the criteria for determining the circumstances in which the appointment of a central contact point under MLD4 is appropriate and the functions of that central contact point. The draft RTS set out the criteria that Member States must consider when deciding whether foreign payment service providers and electronic money issuers should appoint a central contact point and also list the functions the central contact point should perform. Comments are invited by 5 May 2017.

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ESMA review of third-country framework

The European Commission is currently undertaking a review of the ESAs and the EU third-country framework for financial markets as part of its CMU work. The Commission: (i) calls for reforms to the EU third-country framework, highlighting the fragmented nature of third-country provisions in existing financial services legislation; (ii) ESMA to be given the power to charge fees to third-country entities requiring recognition; (iii) notes possible improvements to ESMA to be considered in the context of its CMU work; and (iv) notes the current EMIR CCP equivalence regime relies strongly on the home country regulator and asks whether the EU has sufficient assurance that the risks of the third-country infrastructures’ activities in the EU are adequately assessed and addressed by third-country home regulators.

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Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
17 February 2017