06 Oct 2020

To: Corporate Affairs Members

On Friday 2 October, the European Securities and Markets Authority (ESMA) published its Work Programme for 2021 -  a pivotal year for ESMA with its Chair, Steven Maijoor, and its Executive Director, Verena Ross, both set to leave, and Europe’s largest financial market (the UK) sitting outside of its remit. Critically, 2021 will see ESMA take on increased supervisory powers for central counterparties, benchmarks and securitisation repositories, while much of its single rulebook and supervisory convergence work will need to focus on the development of the Capital Markets Union, and addressing the impact of both COVID-19 and Brexit on the EU’s markets and investors.

In this note, we outline the main elements of ESMA’s 2021 work programme, which are summarised as follows:

  1. Promoting supervisory convergence – Focusing on fund liquidity risk and liquidity management tools, retail investment products costs and performance, quality and usability of data, supervision of ESG reporting and ESG data usage, and the implementation of EMIR. Work will continue on ESMA’s use of peer reviews on supervision of cross-border activities, NCAs’ handling of relocation to the EU27 due to Brexit, supervision of CCPs, supervision of CSDs, and on the scrutiny and approval procedures of prospectuses;
  1. Assessing risks to investors, markets, and financial stability – Given the uncertainty in the markets caused by the COVID-19 pandemic, ESMA will place an increased emphasis on integrating financial innovation and ESG into its risk analysis. ESMA will also look to improve the use of data to support its risk-based approach to supervision and to support its other policy and convergence work;
  1. Completing a single rulebook for EU financial markets – During 2021, priority areas include reviews of MiFID and AIFMD and identifying rulebook changes in support of the CMU. Additionally, following the EMIR Refit changes, ESMA intends on reviewing technical standards which, depending on market developments, may include clearing thresholds and obligations. ESMA is still considering the final RTS which will apply to UK-based firms seeking to rely on any future equivalence decision under MiFIR;
  1. Directly supervising financial entities – Recognising the increase supervisory role for ESMA as a result of the ESA Review, ESMA confirms during 2021 it will focus on third-country central counterparty supervision as critical financial market infrastructures under EMIR 2.2 and prepare for the new supervisory mandates regarding Benchmarks and Data Service Providers.

These themes are discussed in more detail below. As previously, if other colleagues would like to be added to our updates on European policy issues, please contact us at europe@theia.org.



Promoting Supervisory Convergence:

Top of ESMA’s priorities for 2021 is driving forward with its plans for further supervisory convergence in Europe, and the creation of a ‘common risk-based and outcomes-focused supervisory culture in the EU. ESMA notes it will be pushing for the better identification of risks, focusing on investor protection, financial stability, and the orderly function of markets. Specifically, ESMA notes it will focus on liquidity risks in funds and the use of liquidity management tools by funds, following the work done in this area with NCAs during 2020 in the context of COVID-19. It will also maintain a focus on performance and cost of retail investment products – especially given the attention increasing retail participation in the markets has been given by the Commission in its CMU Action Plan.

ESMA also plans on seeking agreement from NCAs on ‘common actions to improve the quality and usability of data across the various reporting regimes’. In addition, ESMA will likely seek further convergence in supervision over ESG reporting and usage of ESG data by capital market participants, which will be of interest to those members following the Sustainable Finance Disclosure Regulation (SFDR) and possible delays in the implementation of Level 2 guidance to January 2022. ESMA will be looking to increase its use of peer review networks regarding the supervision of cross-border investment firms. ESMA will continue to monitor the NCAs’ handling of relocation to the EU27 in the context of the UK’s withdrawal from the EU, supervision of CCPs, supervision of CSDs, and the scrutiny and approval procedures of prospectuses by NCAs.

Specific activities designed to promote supervisory convergence in 2021 include:

  • Ensuring consistent implementation of the EMIR regulatory framework for EU CCPs through the newly established CCP Supervisory Committee, including the use of opinions and enhanced cooperation between NCAs. ESMA will also seek consistent implementation of the CCP Recovery and Resolution Regulation, again through guidelines once adopted after the trialogue process.
  • Ensuring consistent application of the Market Abuse Regulation in line with the MAR review final report, including through reviewing guidelines on information conveyed to issuers and accepted market practices. ESMA will also discuss the Short Selling Regulation by providing guidance to market participants to clarify the scope of application of the SSR obligations and prohibitions.
  • Improving the quality of reported data identified as a continued priority for supervisory convergence and as a precondition to data-driven risk-based supervision, by implementing ESMA’s Data Strategy following the enactment of the SFTR, EMIR Refit, AIFMD, MMF, Prospectus, MAR and MiFIR reporting regimes.
  • Achieving greater consistency of NCAs’ approaches concerning UCITS and AIFMD. This includes discussions on supervisory cases with cross-border relevance, workshops on liquidity management, follow-up work on the cost and performance of retail investment products, as well as issuing guidelines on the requirements for marketing communications via its first report on marketing requirements and marketing communications.
  • Ensuring consistent application of MiFID II and MiFIR and co-ordination between NCAs in the area of investor protection and intermediaries (including cross-border activities). This may include issuing supervisory convergence tools concerning authorisation and supervision of investment firms, suitability assessments, costs and charges, and product governance.
  • Strengthening and facilitating the exchange of information within the remit of the Corporate Finance Standing Committee (CFSC), namely prospectus, notifications of major holdings, corporate governance and takeover bids. ESMA will begin mandatory peer review relating to the scrutiny and approval procedures of prospectuses by NCAs as required under the Prospectus Regulation.
  • Strengthening supervision and enforcement of financial and non-financial information with a particular focus on alternative performance measures, sustainable finance, and the European Single Electronic Format. This may include ESMA preparing common enforcement priorities for the NCAs to report against annually, and tasking NCAs with specific enforcement objectives.

Assessing risks to investors, markets and financial stability:

Against the backdrop of the ongoing COVID-19 pandemic, ESMA’s second major priority for 2021 will be bolstering its risk identification and assessment capabilities to support its ability to meet its investor protection, orderly markets, and financial stability goals. ESMA will look to enhance its reliance on data-collection through NCAs and market participants, as well as its own systems. This will include considering how best to systematically monitor investor trends in new and emerging products, as well as ESG market developments, so it can provide advice to the EU institutions accordingly. Throughout 2021, work to ensure a convergent approach to the identification of areas where product intervention powers under MiFID could be used will continue, as will ESMA’s focus on the performance of investment funds in stressed scenarios.

Specific actions that will be undertaken by ESMA to help it in assessing risks include:

  • Improving the operation of ESMA’s 20 different data reporting IT systems to support its activities, in particular focusing on improving data quality, integration and usability, in close co-ordination with NCAs. This will include the design and implementation of data quality action plans on AIFMD, MMFR, Prospectus, MiFIR/MiFID II.
  • ESMA contributing to the European Forum for Innovation Facilitators (EFIF) together with EBA and EIOPA, given its specific remit to help with the scaling up of innovation in the EU financial sector and to promote a common response to new technologies and reporting across financial services.

 Completing a single rulebook for EU financial markets:

Alongside increased supervisory convergence in Europe and enhanced monitoring capabilities, ESMA will continue its work towards completing a single EU rulebook, specifically the technical standards and advice ESMA has been mandated to draft by the relevant legislation or otherwise entrusted by the European Commission. During 2021, it is likely this work will include:

  • On central clearing counterparties, developing Level 2 regulations following the introduction of EMIR 2.2 and from the CCP Recovery and Resolution Regulation once adopted.
  • Responding to potential amendments in the Market Abuse Regulation by issuing new technical standards or revising existing ones, if directed by the Commission based on experience during the COVID-19 pandemic. This may also extend to a review of the Short Selling Ban introduced at the start of the COVID-19 pandemic.
  • Advice on AIFMD, MIFID, and potentially UCITS depending the outcomes of the reviews of each by the European Commission. ESMA will also provide technical advice and/or develop technical standards as a follow-up to the MiFID II/MiFIR ‘quick-fix’ package covering transparency, market structure, and commodity derivative issues.
  • Contributing to the development of a single rulebook in the area related to investment firms, the provision of investment services, and the application of the third-country firms’ regime by ensuring that the relevant Technical Standards and other relevant documents are delivered to the Commission prior to the implementation of the IFR recommendations in June 2021.
  • Continuing to contribute to the establishment of a robust BMR regulatory framework, providing support to the preparation of ESMA’s future BMR supervisory activity, and promoting supervisory convergence in the area of BMR among NCAs.

Direct supervision of financial entities:

In 2021, ESMA will acquire direct supervisory powers in three areas: Credit Rating Agencies, Trade Repositories and Securitisation Repositories. In addition, ESMA will be responsible for the recognition of third-country CCPs and third-country CSDs, a process in part already started as a result of Brexit. Preparation work will also take place in 2021 for supervisory responsibilities on benchmark administrators and data reporting service providers (DRSPs) that will begin in 2022. Specific activities ESMA will undertake in carrying out its direct supervision responsibilities include:

  • Conducting the tiering determination, as well as the assessment of comparable compliance where applicable, processing applications, monitoring of compliance with recognition conditions by TC-CCPs, taking new recognition decisions and the review of existing ones.
  • Periodic monitoring of the compliance with recognition conditions by third-country CSDs on the basis of information received from the third-country authorities and granting of new recognition decisions.
  • Engagement with Credit Ratings Agencys, investigations, thematic reports and letters addressed to CRAs identifying risks and requesting remediation in alignment with key supervisory priorities
  • Supporting Trade Repositories through the end of the Brexit transition period, and as firms continue to relocate related activity to the EU27.