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Regulatory Round-up: September 2021


Welcome to AQMetrics regulatory round-up, a monthly initiative that keeps readers abreast of all the latest regulatory news and events.After a big focus on green and ESG initiatives in August, including a number of major announcements, last month proved to be relatively quiet for regulators. Nonetheless, there were still some important announcements and speeches.


The European Securities and Markets Authority (ESMA), for instance, warned it saw risks of a market correction in what’s been an uneven recovery. Elsewhere, the Pan-European regulator published its annual work programme, a number of consultations on MiFID II best execution reporting and short selling, and there was also a MiFID II report on algorithmic trading as well as new Q&As.

And the FCA made a number of key announcements on the orderly wind-down of Libor this year and set out a major new plan to tackle investment harm.


ESMA publishes annual work programme

28 September – ESMA published its 2022 Annual Work Programme (AWP), outlining priority areas for the next 12 months in working to enhance investor protection and promote stable and orderly financial markets.

The latest AWP comes at a time of significant change for ESMA, with new powers and responsibilities and large growth in staff members. Yet many of the key areas of focus for 2022 remain largely the same, including: supervision, sustainability, digitalisation and the capital markets union.The latter includes an ongoing review of AIFMD, with a number of areas of potential harmonisation across the EU, such as risk and liquidity (especially management tools) and the use of leverage.

ESMA warns of potential market correction

1 September – in its second Trends, Risks and Vulnerabilities (TRV) Report of 2021, the Pan-European watchdog warned of the potential of a market correction amid an uneven global economic recovery.

Valuations and ultra low interest rates were once again key concerns, although ESMA also touched on the recent rise of specific event risks that have emerged in recent months, including the spectacular blow-up of US family office Archegos, the rise of so-called meme stocks, and the dramatic downfall of Grensill.


ESMA consults on proposals for a review of MiFID II best execution reporting

24 September – ESMA launched a consultation on proposals for improvements to the MiFID II framework on best execution reports.These proposals aim at ensuring effective and consistent regulation and supervision and enhancing investor protection.Specific proposals include:

  • the reporting obligations for execution venues:
    • aimed at simplifying the reporting requirements by reducing the granularity and volume of data to be reported; and
    • moving to a set of seven indicators aimed at disclosing meaningful information to help firms to assess venues’ execution quality; and
  • the reporting requirements for firms: focusing mainly on clarifying the requirements for firms that transmit client orders or decisions to deal to third parties for execution.

Stakeholders are invited to provide their responses by 23 December 2021.


ESMA publishes MiFID review report on algorithmic trading

29 September – ESMA published the MiFID II/MiFIR review report on algorithmic trading. The Final Report concludes that no fundamental issues have emerged with respect to the MiFID II algorithmic trading regime which has overall delivered on its objectives, although the report identified a number of minor issues which will be followed up by ESMA.


ESMA consults on short selling regulation

24 September – ESMA launched a consultation paper on the review of the Short Selling Regulation (SSR).
The CP sets out suggestions for operational improvements and policy clarifications on:

  • the calculation of net short positions, the prohibition of uncovered short selling and the locate rule under which short selling trades can take place;
  • the mechanism for transparency of net short positions and the proposal to publish aggregated net short positions per issuer based on all individual positions and the scope of the exemptions for shares that are more heavily traded in a third country; and
  • the introduction of a centralised notification and publication system to reduce reporting burdens, increase cost efficiency and foster ESMA’s monitoring capacity and coordination powers in case of potential threats at EU level.

The CP also contains an empirical analysis of the impact of the short selling bans adopted after the COVID-19 outbreak, which were widely panned by hedge funds, with specific reference to liquidity and volatility.

Nonetheless, ESMA concluded that current intervention powers remain a useful tool in case of developments impacting the resiliency of financial markets.ESMA will consider the responses it receives to this consultation paper by 19 November 2021.


FCA sets out plan to tackle investment harm

15 September – The FCA has published a new strategy aimed at tackling investor harm. The FCA said it will publish metrics to assess whether these outcomes are being met.

Of particular note is the FCA’s desire to halve the number who are investing in higher risk products that are not aligned to their needs.

To achieve this, the FCA said it would implement a range of measures including:

  • Exploring regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products
  • Launching a new £11m investment harm campaign, to help consumers make better-informed investment decisions and to reduce the number of people investing in inappropriate high-risk investments
  • Being more assertive and agile in how the FCA detects, disrupts and takes action against scammers, thereby reducing investment scams
  • Strengthening the Appointed Representatives (AR) regime, with a consultation to be launched later this year
  • Reviewing the compensation framework to ensure that it remains proportionate and appropriate


FCA’s CEO promises more active role, new technology

22 September – In a speech delivered at the Lord Mayor’s City Banquet at Mansion House, the FCA’s CEO, Nikhil Rathi, promised a more assertive role of the FCA, underpinned by new technology and a data-driven approach.

‘We have often been criticised for acting slowly or with too much risk aversion,’ he noted. ‘This is changing. We are applying a bolder risk appetite in dealing with serious misconduct, including, as you will have seen, using criminal powers in the most serious cases involving financial crime or money laundering.’When it comes to data and technology, meanwhile, Rathi said the FCA plans to become more forward-looking in order to keep apace with the rapid technological changes at investment firms.’‘And as we accelerate our goal of becoming a data and digital first regulator, this means increasing investment in our own capabilities, £120m over 3 years to maximise our move to the cloud,’ he added.‘Regulatory reports are estimated to cost between £1.5bn to £4bn a year, with 20,000 rules across 58,000 firms. That’s why we’re working with the Bank of England on the Transforming Data Collection Initiative. By standardising data and leveraging new technology at scale, regulatory reporting can be delivered faster and at lower cost.’


SEC delays certain assets from enforcement actions under new disclosure rule

24 September – The SEC said it would delay until Jan. 3, 2022 certain assets from a new disclosure rule for off-exchange securities, which was due to go into force on the 28th of September.The agency’s no action letter, which affects quotes by broker dealers for the buying and selling of government bonds, does not change the agency’s compliance date for a new rule aimed at stamping out fraud in U.S. equities markets starting on Sept. 28, 2021, the agency said.