Consultation Paper on the RTS 2 Annual Review
Consultation Paper on the RTS 2 Annual Review

The European Securities and Markets Authority (ESMA) invites responses to the specific questions listed in the Consultation Paper on the transparency regime for non-equity instruments and the trading obligations for derivatives MiFID II/ MiFIR review report published on the ESMA website.

Responding to this paper 

ESMA invites comments on all matters in this paper and in particular on the specific questions summarised in Annex 1. Comments are most helpful if they: 

  1. respond to the question stated;
  2. indicate the specific question to which the comment relates;
  3. contain a clear rationale; and
  4. describe any alternatives ESMA should consider.

Next steps

ESMA will consider all comments received by 11 June 2021.

All contributions should be submitted online at www.esma.europa.eu under the heading ‘Your input – Consultations’.

ESMA expects to publish a final report and submit, if necessary, regulatory technical standards to the European Commission for endorsement in July 2021. Following such endorsement, the RTS are then subject to a non-objection procedure by the European Parliament and the Council.

ESMA publishes results of the annual transparency calculations for non-equity instruments
ESMA publishes results of the annual transparency calculations for non-equity instruments
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today made available the results of the annual transparency calculations for non-equity instruments, which will apply from 1 June 2021. These calculations include the liquidity assessment and the determination of the pre- and post-trade size specific to the instruments and large in scale thresholds.

The results for the liquid sub-classes have been published in Excel format in the Annual transparency calculations for non-equity instruments register. The file does not contain the results for a number of asset-classes and sub-classes given the impossibility to correctly apply the segmentation criteria, as defined in Annex III of RTS 2 due to data quality problems or the absence of reporting standards for the applicable reference data. As a result, the transparency calculations for, among others, credit derivatives and options, futures and FRAs (forward rate agreements) on interest rates are not available.

ESMA will provide the annual transparency calculations for non-equity instruments at instrument (ISIN) basis, both liquid and illiquid ones, as of 30 April 2021. This information will be made available through the Financial Instruments Transparency System (FITRS) both by publishing XML files (here) and through the Register web interface (here).

As communicated in the Public Statement on the Use of UK data in ESMA databases and performance of MiFID II calculations following the end of the UK transition period on 31 December 2020, the UK data reported before Brexit is used to perform the calculations.

Recommendations for market participants:

Next steps

The transparency requirements based on the results of the annual transparency calculations for non-equity instruments shall apply from 1 June 2021 until 31 May 2022. From 1 June 2022, the results of the next annual transparency calculations for non-equity instruments, to be published by 30 April 2022, will become applicable.

Retail clients continue to lose out due to high investment products costs
Retail clients continue to lose out due to high investment products costs
The European Securities and Markets Authority (ESMA), the EU securities regulator, today publishes its third annual statistical report on the cost and performance of European Union (EU) retail investment products. In the report ESMA finds that the costs of investing in key financial products, such as UCITS funds, retail alternative funds, and structured investment products (SRPs) remain high and diminish the investment outcome for final investors.

Clear and understandable information about the impact of costs on the returns that retail investors can expect to receive is key to allowing investors to make informed investment decisions. Ensuring this information is made available is a key element in meeting ESMA’s investor protection objective.

The main findings in the report are the following:

  • Fund costs: UCITS costs only marginally declined over time. For one-year investments they were 1.4% in 2019 compared to 1.5% in 2018 on average across asset classes;
  • Volatile returns: Average gross UCITS fund performance depends on market developments and varies significantly over time. It amounted to 7.7% in 2019, while it reached no more than +0.2% in 2018 for a one-year investment. The market impact of COVID-19 falls outside the reporting period;
  • Retail investors: Retail clients pay on average around 40% more than institutional investors across asset classes. A ten-year investment of EUR 10,000 in a portfolio composed of equity, bond and mixed funds led to a gross value of around EUR 21,800 and EUR 18,600 after costs. Around EUR 3,200 in costs were paid by the investor;
  • Risks: Higher risk exposures entailed higher costs irrespective of the asset class;
  • Active and passive funds: The evidence on cost structure showed that costs were higher for active equity and bond UCITS compared to passive and UCITS ETFs, ultimately implying net underperformance of active equity and bond UCITS, on average, compared to passive and UCITS ETFs. Top-25% active equity UCITS overperformed compared to the top-25% passive and related benchmarks, at shorter horizons. However, the cohort of UCITS changes over time making it complicated for investors to consistently identify outperforming UCITS;
  • ESG funds: ESG outperformed non-ESG equity UCITS mostly due to sectoral factors. According to the evidence, actively managed ESG funds showed lower costs than non-ESG, not supporting the view that there is systematic greenwashing by ESG funds;
  • Retail AIFs: Retail AIFs, similar to UCITS, showed high return volatility. While being negative in 2018, gross annualised returns in 2019 were 12% for Fund of Funds (FoFs) and 9% for the residual category “Others” that includes investment primarily focused on equity and bonds. Net returns confirm what has been observed for gross returns, being 11% for FoFs and 7% for Others;
  • SRPs: The analysis on costs and performance scenarios for SRPs showed that total costs were largely attributable to entry costs and varied substantially by country and payoff type. Moreover, there was little difference in simulated returns between moderate and favourable performance scenarios; and
  • Transparency: There is limited comparability across Member States. Heterogeneity and data availability issues persisted, as well as lack of harmonisation in national regulation.

This report aims at facilitating increased participation of retail investors in capital markets by providing consistent EU-wide information on cost and performance of retail investment products. It also demonstrates the relevance of disclosure of costs to investors, as required by the MiFID II, UCITS and PRIIPs rules and the need for asset managers and investment firms to act in the best interest of investors, as laid down in MiFID II, and the UCITS and AIFM Directives.

Next steps

EIOPA has also published today its report on insurance-based investments products and personal pension products. A joint ESMA-EIOPA event to share the findings of both reports will take place on 21 April 2021. During this webinar you will see a presentation of the reports, which will be followed by a Q&A session. 

ESMA PUBLISHES INTERIM TEMPLATES FOR STS SYNTHETIC SECURITISATION NOTIFICATIONS
ESMA PUBLISHES INTERIM TEMPLATES FOR STS SYNTHETIC SECURITISATION NOTIFICATIONS
The European Securities and Markets Authority (ESMA), the EU’s securities and markets regulator, has published the interim simple, transparent and standardised (STS) notification templates for synthetic securitisations following amendments to the Securitisation Regulation (SECR).

The interim templates allow originators to notify ESMA of synthetic securitisations that meet the STS criteria.

The amended SECR was published in the Official Journal of the European Union on 6 April and enters into force today. The amended SECR extends the STS framework to synthetic securitisations. As with traditional securitisations, only those synthetic securitisations that meet pre-defined STS requirements will be published on ESMA’s website.

Until the date of the application of the Regulatory Technical Standards (RTS) specifying the content and the format of STS notifications for synthetic securitisations, originators can make the necessary information available to ESMA in writing during the interim period. ESMA makes available, in its website (LINK to the “STS securitisation notification” section), interim STS synthetic notification templates that originators can use to ensure consistency across all STS notifications.

The interim STS notification templates may be used by originators on a voluntary basis which may be subject to possible changes following the entry into force of the RTS.

ESMA consults on regulating crowdfunding
ESMA consults on regulating crowdfunding
The European Securities and Markets Authority (ESMA), the EU securities markets regulator, has today launched a consultation on draft technical standards on crowdfunding under the European crowdfunding service providers regulation (ECSPR).

The new Regulation on crowdfunding regulates for the first time at EU level lending-based and equity-based crowdfunding services. It  introduces a single set of requirements applicable to CSPs across the EU, including strict rules to protect investors.

The ECSPR requires ESMA to develop 12 technical standards – 8 regulatory technical standards (RTS) and 4 implementing technical standards (ITS) – on a variety of important topics.

This consultation paper seeks input on the draft technical standards developed by ESMA, on the following issues:

  • Complaint handling;
  • Conflicts of interest;
  • Business continuity plan;
  • Application for authorisation;
  • Information to client on default rate of projects;
  • Entry knowledge test and simulation of the ability to bear loss;
  • Key investment information sheet;
  • Reporting by crowdfunding service providers to NCAs (and NCAs to ESMA); and
  • Publication of national provisions concerning marketing requirements.

Next steps

ESMA will consider the responses to this consultation when developing the draft technical standards for the European Commission. The closing date for responses from stakeholders is 28 May 2021.

The majority of these technical standards are to be submitted to the European Commission for adoption before 10 November 2021. The remaining ESMA technical standards are to be delivered by 10 May 2022.

ESMA appoints new Management Board member
ESMA appoints new Management Board member
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has appointed a new member to its Management Board to fill a vacancy following the departure of a member of the Board of Supervisors.

The appointment took place at the Board of Supervisors meeting in Paris today, 28 January.

The new member is:

  • Magdalena Lapsa Parczewska, Komisja Nadzoru Finansowego (KNF), Poland.

The new member will serve the remainder of the outgoing member’s term, until 30 March 2022, commencing with immediate effect.

The outgoing member was:

  • Sebastian Albella Amigo, formerly of the Comisión Nacional del Mercado de Valores (CNMV), Spain.

The Management Board, chaired by Steven Maijoor, Chair of ESMA, is responsible for ensuring that the Authority carries out its mission and performs the tasks assigned to it under its founding Regulation. The Management Board now consists of:

  • Steven Maijoor, European Securities and Markets Authority (ESMA);
  • Magdalena Lapsa Parczewska, Komisja Nadzoru Finansowego (KNF);
  • Vojtech Belling, Česká národní banka (CNB);
  • Vasiliki Lazarakou, Hellenic Capital Markets Commission, (HCMC)
  • Derville Rowland, Central Bank of Ireland (CBI);
  • Robert Ophèle, Autorité des Marchés Financiers (AMF), France; and
  • Erik Thedéen, Finansinspektionen (FI), Sweden.
Publication of transparency calculations update after the end of the Brexit transition period
Publication of transparency calculations update after the end of the Brexit transition period
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has published today its first Financial Instruments Transparency System (FITRS) file following the end of the Brexit transition period.

In particular, the equity transparency calculation results delta file (DLTECR) published by ESMA contains updated transparency calculation results for equity instruments which previously had a UK venue as the most relevant market.

ESMA would like to remind users to process this file in accordance with their systems implementation to capture all these updates.

ESMA will resume processing of FITRS files received during the maintenance window in the coming days between 9 and 11 January 2021 and will resume processing of DVCAP files received during the maintenance window on 11 January 2021, as per Brexit data operational plan published on ESMA’s website.

ESMA promotes transparency for TLTRO III transactions
ESMA promotes transparency for TLTRO III transactions
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, issues today a public statement promoting transparency in the IFRS financial statements of banks regarding accounting for the third series of the European Central Bank’s (ECB) Targeted Longer-Term Refinancing Operations (TLTRO III).

ESMA observes that, in practice, there is diversity regarding the accounting treatment of the ECB’s TLTRO III refinancing transactions by banks. ESMA believes that, given the overall volume of the TLTRO III operations, this matter may have a material effect on the financial statements of banks and may be widespread across the EU. Therefore, ESMA emphasises the importance of providing an adequate level of transparency regarding the accounting treatment of these transactions in the financial statements of banks.

The main recommendations for affected banks are:

  • to provide entity-specific disclosures of the significant accounting policies and of the significant judgements and assumptions related to the TLTRO III transactions;
  • to ensure transparency about risks arising from financial instruments, addressing banks’ assessment of the possible achievement of conditions or covenants attached to the TLTRO III loans; and
  • to disclose the carrying amount of TLTRO III liabilities at the end of the reporting period and the related interest expense.

Next steps

ESMA intends to submit questions related to this matter to the IFRS Interpretations Committee for consideration.

ESMA updates Q&A on costs and charges
ESMA updates Q&A on costs and charges
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today updated its Questions and Answers on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

The Q&As on MiFID II and MiFIR investor protection and intermediaries’ topics includes one new Q&As on ‘Information on costs and charges’ that aim to give guidance on how firms can present ex-post costs and charges information to clients in a fair, clear and not misleading manner.

In particular, the information should be presented:

  1. through a standalone document (which could still be sent together with other periodic documents to clients); or
  2. within a document of wider content, provided that it is given the necessary prominence to allow clients to find it easily.

The purpose of the MiFID II/MiFIR investor protection Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR.

ESMA will continue to develop this Q&A document on investor protection topics under MiFID II and MiFIR, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A document.

ESMA CONSULTS ON SUPERVISORY FEES FOR DATA REPORTING SERVICES PROVIDERS
ESMA CONSULTS ON SUPERVISORY FEES FOR DATA REPORTING SERVICES PROVIDERS

The European Securities and Markets Authority, the EU’s securities markets regulator, today launches a public consultation on supervisory fees for data reporting services providers (DRSPs) to be supervised by ESMA starting in 2022.

Following the ESAs Review, the authorisation and supervision of data reporting services providers (DRSP) will be transferred from national competent authorities to ESMA starting January 2022.

The consultation aims to gather stakeholder views on fees for DRSPs that will be supervised by ESMA. The proposed fee framework for DRSPs draws on the existing fee frameworks for Trade Repositories and Securitisation Repositories which set out application as well as annual supervisory fees.

ESMA is proposing both application and authorisation fees, as well as an annual supervisory fee for DRSPs. It has also proposed a timeline for the payment of the fees.

Next steps

The closing date for responses is 4 January 2021. ESMA will consider the responses to this consultation in providing technical advice to the Commission and aims to publish its final report in Q1 2021.

ESMA publishes new Q&A on product governance
ESMA publishes new Q&A on product governance

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today updated its Questions and Answers on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

The Q&As on MiFID II and MiFIR investor protection and intermediaries’ topics includes three new Q&As on ‘product governance’ that aim to give guidance on how firms manufacturing financial instruments should ensure that:

  • financial instruments’ costs and charges are compatible with the needs, objectives and characteristics of the target market;
  • costs and charges do not undermine the financial instrument’s return expectations;
  • the charging structure of the financial instrument is appropriately transparent for the target market, ensuring that it does not disguise charges or is too complex to understand.

The purpose of the MiFID II/MiFIR investor protection Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR.

ESMA will continue to develop this Q&A document on investor protection topics under MiFID II and MiFIR, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A document.