European Securities Markets Challenges and opportunities ahead
Outline ESMA s mission Key activities UK s withdrawal from the EU (Brexit) ESA review MIFID 2 implementation 2
ESMA the EU s financial market regulator ESMAs mission is to enhance investor protection and promote stable and orderly financial markets Mission consists of our three objectives: Investor protection Orderly markets Financial stability Achieved through four activities: Assessing risks to investors, markets and financial stability Completing a single rulebook for EU financial markets Promoting supervisory convergence Supervising specific financial entities 3
Key activities (1/2) Assessing risks to investors, markets and financial stability Identifying trends, risks and vulnerabilities EU IT projects Data collection and management data strategy Stress-testing: CCPs, investment firms Promoting Supervisory Convergence Supervisory Convergence Work Programme with enhanced use of peer reviews (e.g. compliance function) and on-site visits Waivers, Opinions, Common Enforcement Priorities Central Counterparties (CCP): non-voting member in (18) colleges MiFID 2 implementation will continue to be a priority Developing role for ESMA: product intervention 4
Key activities (2/2) Completing Single Rulebook Benchmarks SFTR Prospectus Regulation Investor protection Overall ESMA objective, including empowerment of retail investors Investor warnings (ICOs, contracts-for-difference ) Key Investment Document (KID) PRIIPs implementation together with EBA and EIOPA Asset management: performance and cost Need for stronger EU supervisory convergence and enforcement culture 5
UK withdrawal from the EU (1/2) UK s withdrawal will lead to more market fragmentation and risk (e.g. two thirds EU equity trading takes place in the UK) Discussions between EU and UK post-march 2019 ongoing and uncertain Cooperation between ESAs, COM, ECB, SSM and SRB Supervisory Convergence (since beginning 2017) Opinion on general principles to support supervisory convergence in the context of the United Kingdom s withdrawal from the European Union Also relevant for ESMA as a direct supervisor of TRs and CRAs. Sector-specific opinions (asset managers, investment firms and trading venues) Supervision Coordination Network 6
UK withdrawal from the EU (2/2) Financial Stability (covering areas such as): CPs (availability UK CCPs, exposure by Clearing Members ) Trading Venues (trading on EU venues, MIFID transparency regime ) UCITS (passporting, outsourcing ) MIFID Investment Firms (branches, outsourcing ) Third country co-operation Need for good co-operation with UK authorities post-withdrawal Enhanced ESMA role for third country entities (ESA and EMIR review proposals) 7
ESA review (1/4) European Commission proposal published in September 2017 (+ EMIR review) Currently being discussed by Council and Parliament Full support to advance on CMU Key role for supervisory convergence European Commission proposal New governance New objectives More intrusive supervisory convergence and powers New supervision powers New funding 8
ESA review (2/4) new governance CCP Executive Session CCP Chair 2 CCP Directors Relevant NCAs Relevant central banks Commission Board of Supervisors ESMA Chair 5 Board members (non-voting) 27 NCAs 3 Non-voting NCAs Commission Securities and Markets Stakeholders Group Prepares all Board decisions Direct Supervision decisions BUL Stress test Supervisory priorities for the Strategic Supervisory Plan Monitoring delegation, outsourcing and risk transfer arrangements to non-eu countries Executive Board ESMA Chair 5 Board members Head of CCP as observer EC as observer 9
ESA review (3/4) new objectives New objectives: Technical innovation Coordinate the national technological innovation instruments set up by NCAs Promote a technology literacy Promote information sharing on cyber threats, incidents and attacks New Risks Risks related to environmental, social and governance-related factors New direct supervisory powers: Benchmarks (critical) Data Service Providers (APA, ARMs, CTP ) EUSEF, EUVECA and ELTIF Prospectuses (specialist, NCAs closer to retail investors) 10
ESA review (4/4) new powers Union supervisory handbook Develop and maintain up-to-date supervisory handbook Containing best practices and methodologies Coordination Strategic Supervisory Plan Ex post assessment of NCAs work programmes Ensure that the competent authorities effectively supervise outsourcing, delegation and risk transfer arrangements in third countries Capacity to recommend NCAs to initiate investigations Independent reviews Replace peer reviews with only ESMA staff Transaction Reporting Central data repository to collect and disseminate transactions Third country equivalence Assist the Commission in preparing equivalence decisions Adjustment of equivalences to new developments in third countries Responsibility for monitoring on an ongoing basis the regulatory and supervisory developments Develop administrative arrangements Own initiative binding mediation 11
MIFID 2 implementation (1/2) MIFID 2 will enter into effect on 3 January 2018 ESMA becoming integral part of market infrastructure with FIRDS and TRACE ESMA promoting supervisory convergence Opinions (waivers) Q&As Some market participants claim not to be ready yet Some Member-States delayed with transposition 12
MIFID 2 implementation (2/2) Some investor protection concerns expressed: Target market ESMA Guidelines on Product Governance 5 categories to be considered (type of client, knowledge and experience, ability to bear losses, risk tolerance and clients objectives and needs) Product intervention NCA/ESMA power to prohibit or restrict (a) the marketing, distribution or sale of certain products/instruments or (b) certain activity ESMA measures temporary NCAs permanent or temporary ESMA coordination role Inducements and research 13