Verena Ross of ESMA on Establishing a Common EU Third-Country Regime

Ms. Ross discussed the role of ESMA in regard to dialog and cooperation with supervisors outside the EU. It develops contacts, enters into administrative arrangements and regulatory interactions with the supervisory authorities of "third countries" and with international organizations. She then discussed work of ESMA toward further strengthening the third-country frameworks and highlighted that there is no generic third-country framework. This framework is a set of arrangements varying across the different pieces of legislation such as European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Directive (MiFID), Alternative Investment Fund Managers Directive (AIFMD), CRA Regulation, and Benchmarks Regulation. "No arrangement is identical and they are mixtures of equivalence, endorsement, recognition, third-country passporting, or no arrangement at all." She mentioned, " ...it would be beneficial to create greater consistency." To ensure a common approach to third-country entities active across the EU financial markets, the supervisory and enforcement powers should be conducted at EU level by ESMA for third-country entities such as credit rating agencies (CRAs), trade repositories, central counterparties (CCPs) and benchmarks. In the context of CCPs, EC has put forward an extensive EU-wide third-country regime in a proposal to amend the EMIR legislation. ESMA should play such a central role also regarding third-country trading venues and potentially other important market players. A step to centralize the third-country supervision would not only bring a number of benefits for EU, but will also allow third-country firms to have a single point of reference in relation to the regulatory issues in the EU. 

She highlighted that Asian-headquartered firms with branches or subsidiaries providing investment services in the EU will be directly subject to the new MiFID requirements. From January 03, 2018, under MiFID II/MiFIR, no LEI means no trade. Thus, the Asia-based institutions will be asked to get a Legal Entity Identifier (LEI). She discussed ESMA guidance on MiFID II/MiFIR requirements with a third-country dimension, noting the publishing, in May, of the two opinions clarifying under which circumstances transactions on third country trading venues are subject to the post-trade transparency requirements for investment firms and/or are considered to be economically equivalent over-the-counter (EEOTC) contracts for the purpose of the position limit regime. She also informed, "We are now in the process of assessing more than 200 third-country trading venues for which we have received requests. ...I know that you’re particularly concerned about the application of the trading obligation for shares to shares which have their primary pool of liquidity outside the EU. I hope that our recently issued guidance together with the European Commission provided you with some comfort that, in the absence of an equivalence decision, transactions in shares would not be considered to be of a systematic, regular and frequent nature and therefore not subject to the trading obligation for shares. (sic)" In conclusion, she notes that international convergence is difficult, but absolutely necessary. In coordination with EC, but also in close cooperation with national regulators, ESMA will continue to play a central role in ensuring that "Europe speaks with one single voice vis-à-vis regulators outside the EU."

Related Link: Speech

Keywords: Europe, Banking, Securities, MiFID/MiFIR, LEI, Third-Country Regimes, ESMA