On 9 December 2019, the European Securities and Markets Authority published its second Annual Report on the Supervisory Measures and Penalties that National Competent Authorities have imposed under the European Market Infrastructure Regulation.
The Report covers the period from January to December 2018, focusing on ‘NCAs” Supervisory Measures and Enforcement Actions, their Powers, and the interaction between ‘NCAs’ and Market Participants when monitoring compliance with four articles of ‘EMIR’, including :
- Article 4 (Clearing Obligation)
- Article 9 (Reporting Obligation)
- Article 10 (Non-Financial Counter-parties)
- Article 11 (Risk Mitigation Techniques)
‘ESMA’ has identified an evolution in Supervisory Practices. They are gradually moving from an initial focus on raising awareness to greater efforts on improving the use of the information available for supervisory purposes. ‘ESMA’ has also noted a high degree of harmonisation between the sources of information used by ‘NCAs’ to verify compliance with ‘EMIR’, the ‘NCAs” competences, and their available Supervisory and Enforcement Tools.
However, ‘ESMA’ has also identified some areas that seem to remain a supervisory challenge for ‘NCAs’, including examining trading patterns to identify strategies designed to exploit Regulatory Arbitrage, which could result in the circumvention of the Clearing Obligation.
The supervision of Counter-parties below the Clearing Threshold and of Third-Country Entities trading in Over-The-Counter (‘OTC’) Derivatives with significant impact in the European Union (‘EU’) are also areas that may benefit from closer analysis and further co-operation among ‘NCAs’.
During 2018 the number of ‘NCAs’ conducting investigations into the following issues were:
- 18 regarding Reporting Requirements;
- 8 into Risk-Mitigation Techniques;
- 6 into the Cearing Obligation; and
- 4 into Non-Financial Counter-parties
Approximately 10% of ‘NCAs’ issued recommendations or ‘Warning Letters’ to Market Participants. However, no new Sanctions or Penalties were imposed on Supervised Entities. ‘ESMA’ has noted that, overall, ‘NCAs’ have very divergent approaches on the amounts of administrative fines.
All Counter-parties, whether Financial (Credit Institutions, Investment Firms, Insurers, Portfolio Management Companies, etc.) or Non-Financial, trading in Derivatives should consider the scope and impact of the Annual Report on their individual Operations, seeking input from Operations, Risk and Compliance and Change Management Teams, ensuring that Senior Management / Executive Teams, Board Members and Audit and Risk Committees are appraised.
‘ESMA’ expects this Report to be a useful tool in helping Firms to comprehend the Supervisory and Enforcement efforts of the ‘FCA’ and the Prudential Regulation Authority. The Report has been sent to the European Parliament, the Council and the Commission.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.
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