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AQMetrics Regulatory Round-Up: May 2020


Welcome to AQMetrics regulatory round-up, a monthly initiative that keeps readers abreast of all the latest regulatory news and events.


Following a busy first quarter, which included a number of specific Covid-19 measures, regulators have been focused on implementing additional supervisory measures including weekly business continuity reporting. The Financial Conduct Authority (FCA), for instance, said that as many as two-thirds of its planned initiatives for the next 12 months will be delayed because of Covid-19, according to itslatest Grid, with the UK regulator shifting most of its focus to Brexit preparations and a potential no-deal exit.However, the Central Bank of Ireland (CBI) did release a letter to fund management companies, with more emphasis on fund liquidity – a prominent focus for financial watchdogs this year. Elsewhere, it also affirmed that Irish regulated firms will have to comply with ESMA’s money market fund (MMF) stress testing from 4 May, while ESMA reminded firms of their obligations under MiFID II.And as markets continue their recovery, a European ban on short-selling was finally lifted, much to the relief of many hedge funds.


30 April – CBI letter to asset managers

The CBI senta letterto fund management companies on 30 April dealing with a number of important Covid-19 measures. The regulator again emphasised the importance of liquidity management, with some funds struggling with the torrid market conditions and large redemptive requests back in March.‘The deployment of liquidity management tools such as duties and charges, gates and suspensions should be done in a transparent and proportionate manner, taking into account the best interests of investors,’ the regulator said. ‘In the context of recent market conditions, the Central Bank expects that effective liquidity management includes an assessment as to whether a UCITS or AIF has appropriate liquidity management tools in place. Such an assessment should take into account dealing frequency, investment strategy, portfolio composition and investor profile of the fund.’While none of those measures are new, it once again underlines the strong emphasis regulators are placing on fund liquidity, particularly given the recent volatility and the upcoming liquidity stress tests, slated for September.The CBI also addressed breaches of the UCITS rules during the current market volatility. Where breaches occur, such as when they are outside the control of the fund management company, they should be reported to the CBI and may be subject to supervisory engagement.


30 April – CBI confirms intention to comply with MM stress tests

The CBI published a notice of intention regarding compliance with ESMA’s guidelines on stress testing scenarios for Money Market Funds (MMFs). The regulator said it expects all managers of MMFs to adhere to Guidelines from 4 May 2020.Under the guidelines, MMFs are required to conduct regular stress tests as part of their risk management and regulatory disclosure obligations. Given this, each MMF is expected to have stress testing procedures in place to identify potential stress events – and to assess what impact these are likely to have on their fund.However, the CBI has deferred the deadline for the quarterly reports until July 2020, and may extend this deadline further as ESMA said it was extending its deadline for receipt of these reports to September 2020, because of required enhancements to the reporting templates.Money markets were under severe stress in March, before the Federal Reserve and other central banks stepped in to support them.


6 May – ESMA reminds firms of conduct of business obligations under MiFID II

The European Securities and Markets Authority (ESMA) issued a statement on the risks facing retail investors, and reminded investment firms of their conduct of business obligations under MiFID II.Given the heightened market volatility because of Covid-19, ESMA said firms have even greater duties when providing investment or ancillary services to investors, especially when they have limited investment knowledge or experience. Firms must act honestly, fairly and professionally, and in accordance with the best interests of their clients.


13 May – FCA releases guidance on post and paper communications

On 13 May the FCA released a statement on how firms should handle their post and paper documents. It recognised that, in these exceptional circumstances, firms may not be able to fully comply with them. Where compliance is impossible, firms should notify the FCA as soon as possible, while firms should also ensure that all customers are not disadvantaged because of any delays or difficulties.


18 May – short selling bans lifted across Europe

As markets continued their recovery, the European Securities and Markets Authority (ESMA) confirmed that Austria, Belgium, France, Greece and Spain would not be renewing the bans on short selling, which expired on 18 May. The five had extended their short selling bans for another month in April, having first announced them in mid-March as markets suffered one of their fastest declines ever.Many markets, including European equity markets, bottomed the day the short selling ban was announced and have staged a strong recovery since.Italy, meanwhile, will lift its own restrictions early, before they are due to expire on 18 June. The initial ban had been heavily criticised by hedge funds, which claimed that the move was bad for investors, markets, and the economy as a whole.


20 May – AMF examines bond market transparency under MiFID II

The Autorité des Marchés Financiers (AMF) released an analysis on bond market transparency measures and post-trade transparency data required under MiFID II. The post-trade transparency measures were extended to fixed income assets in early 2018, and require managers to report trade information such as volumes, prices, the time of transaction, and whether or not the transaction took place on a trading platform.But according to the AMF, the transparency of transactions is ‘insufficiently accessible, reliable and exhaustive and hence does not enable investors to make effective use of it.’‘Data vendors do not currently consolidate the full range of available data sources,’ the French regulator added. ‘Depending on the means at their disposal, participants therefore do not always have a complete view of the market. Furthermore, market participants still find it difficult to access data since some trading venues and data reporting services still do not meet all the criteria defined by ESMA in terms of accessibility.’The AMF said that it is committed to ensuring that transparency in bond markets is properly implemented. As well as continuing to improve the quality of reporting, it said it is promoting international ordinary with other European regulators and reiterated its support for a consolidated tape in Europe.