ESMA Updates

This article covers recent news from the European supervisory authorities.

ESMA Consults on Cloud Outsourcing Guidelines

ESMA identified the need to develop guidance on outsourcing to cloud service providers following the European Commission’s FinTech Action plan. On June 3, 2020, ESMA published a consultation paper on Guidelines on Outsourcing to Cloud Service Providers.

The proposed guidelines seek to assist firms and competent authorities to identify, monitor and mitigate the potential risks presented by cloud outsourcing arrangements.

Steven Maijoor, Chair of ESMA,  noted that although cloud outsourcing can bring benefits such as “reduced costs and enhanced operational efficiency and flexibility”, firms should recognize the related challenges, such as “data protection and information security” risks, by ensuring that third-party services are monitored closely and by putting effective exit strategies in place. ESMA noted that concentration risk can arise from many firms using the same large cloud service providers, with potential negative outcomes for financial stability.

The guidelines will apply to a broad range of regulated firms in the European Union including, Alternative Investment Fund Managers and investment firms and credit institutions when carrying out investment services and activities. The proposed guidelines address:

• governance, documentation and oversight of cloud outsourcing arrangements
• pre-outsourcing analysis and due diligence of cloud service providers
• elements to be included in an outsourcing agreement between a firm and a cloud outsourcing provider
• strategies of firms to exit cloud outsourcing arrangements without undue disruption
• exercise of access and audit rights on the cloud service provider
• required notification of critical outsourcings to national competent authorities supervision by competent authorities of outsourcing arrangements

NCAs and financial market participants that use third-party cloud services can submit feedback on the consultation until 1 September 2020. The Final Report on the Guidelines is intended to be published by ESMA by Q1 2021.

To read the draft Guidelines in full, please click here.

ESMA Provides Guidance on the Compliance Function under MiFID II

ESMA, published the final guidelines on the Compliance Function under MiFID II which will replace the previous guidelines issued by ESMA in 2012.   The obligations of the Compliance Function have been expanded and reinforced under MiFID II, capturing new responsibilities such as those in relation to the product governance requirements.  The revised guidelines also contain more detail concerning reporting by the Compliance function.

Whilst the objectives of the Compliance Function together with the key principles behind the regulatory requirements remain largely unchanged, the new guidelines contain updates that increase clarity and foster greater convergence in the implementation and supervision of the new MiFID II compliance function requirements.

For further information, please click here. 

ESMA Renews Decision Requiring Net Short Position Holders to Report Positions of 0.1% and Above

On March 16, 2020, ESMA temporarily amended the threshold for notifying net short positions to Competent Authorities under the Short Selling Regulation from 0.2% of issued share capital to 0.1%. This measure was originally in force until June 16, and was renewed on June 17 2020, for a further 3 months, until September 17, 2020. The announcement is enclosed here.

ESMA Publishes 2019 Annual Report and Updates 2020 Annual Work Program

ESMA published its Annual Report on June 15, 2020 along with an update on its 2020 work program. The report sets out the key actions taken by ESMA during 2019, including its response to the COVID-19 crisis. ESMA’s key achievements during 2019 include Brexit planning, Promoting Supervisory Convergence, Assessing risks to investors, markets and financial stability, Completing a Single Rulebook for EU financial markets and Directly supervising specific financial entities.

The ESMA announcement, which includes the full annual report, is available here.

ESAs Announce Public Hearing on ESG disclosures

The three European Supervisory Authorities (ESMA, EIOPA and the EBA) organized a public hearing on July 2, 2020 on proposed ESG disclosure standards for financial market participants, advisers and products. The aim of the public hearing was to explain and discuss the content of the consultation paper published on 23 April, regarding the draft RTS under the regulation on sustainability‐related disclosures in the financial services sector. 

Further information can be found here.