December 05, 2017

Verena Ross, Executive Director of ESMA, gave a keynote address at the ICI 2017 Global Capital Markets Conference in London. She spoke about key developments in the asset management sector, with focus on supervisory convergence work on Brexit, costs and charges of investment funds, the revised Markets in Financial Instruments Directive (MiFID II), and money market funds (MMF) regulation.

With regard to Brexit, Ms. Ross said that ESMA is focusing on supervisory convergence in the application of common rules (in single rulebook), as Brexit poses particular challenges to ESMA’s objective of greater convergence. This is because the stated intention of the UK government to withdraw not only from the EU but also the Single Market created the potential for a significant shift of entities and activities from the UK to the EU27, as firms sought to secure their passporting rights. ESMA is carefully analyzing the possible cliff effects if the UK were to withdraw from the EU without any political agreement having been reached. Market participants are particularly concerned about the cooperation arrangements that have to be in place between regulators for certain types of activity. For example, both the Undertakings for the Collective Investment of Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive (AIFMD) require cooperation arrangements to be in place in case portfolio or risk management is delegated to an entity in a third country.

She then discussed the work of ESMA on the final MMF Regulation, including technical advice on Level 2 measures, implementing technical standards on the reporting requirements, and guidelines on stress testing. She also discussed the issue of share cancellation and highlighted that ESMA is liaising with EC on this issue since this practice raises issues of interpretation of the MMF Regulation. In light of the output of EC’s assessment, ESMA will decide what action should be taken. “I know that the industry is keen for clarity on this matter and we hope that it will be resolved soon,” added Ms. Ross. Speaking about costs and charges of investment funds, she mentioned that, with regard to the EC’s Capital Markets Union initiative, one goal is to increase the attractiveness of long-terms savings products for retail investors. To this end, EC has asked ESMA, along with the other ESAs, to issue recurring reports on the cost and past performance of the main categories of retail investment, insurance, and pension products. ESMA is working on analyzing this issue.

Ms. Ross also discussed two specific issues in the context of MiFID II—namely investment research and the Legal Entity Identifier (LEI). With regard to MiFID II, compliance with LEI rules is one of the key reforms. EU investment firms and trading venues are obliged to report the LEI of these entities regardless of where they are based and regardless of whether the entity is subject to LEI requirements in its own jurisdiction. As the compliance deadline for this is approaching fast, she emphasized that “we expect market participants to take all necessary steps to ensure full compliance with the LEI requirements under MiFID II.” On this issue, she concluded that “LEI issuance is growing dramatically as the MIFID II deadline approaches, with average daily volumes increasing each week. Indeed, the average daily volume of LEI issuances by week has doubled since the beginning of October. Let us hope that this positive momentum will continue.”


Related Link: Speech (PDF)

Keywords: Europe, EU, Securities, Brexit, LEI, MiFID II, MMF Regulation, Supervisory Convergence, ESMA