EEA members’ supervisory weaknesses exposed in ESMA review
30 November 2017 Paris
Image: Shutterstock
Cyprus, Iceland and the Netherlands have significant weaknesses in supervisory approaches towards the Markets in Financial Instruments Directive (MiFID), according to a peer review by the European Securities and Markets Authority (ESMA).
ESMA made the statement in its review on the guidelines of certain aspects of the compliance function under MiFID II, published 29 November.
Though Cyprus, Iceland and the Netherlands showed some faults in their approaches, ESMA stated that there was, overall, “a high level of compliance by the majority of European economic areas (EEA) national competent authorities”.
ESMA said those countries who did not identify good practices, would be consulted by ESMA on how they can make improvements in time for the MiFID II deadline.
The guidelines in the review studied national competent authorities (NCAs) supervision of investment firms’ compliance functions from July 2014 to June 2016.
The assessment also involved on-site visits of the NCAs from Austria, Cyprus, Denmark, France and Slovakia.
ESMA specifically reviewed how those NCAs carried out risk assessments, monitored compliance obligations and how their reports were made to senior management.
The review “positively assessed” 27 NCAs out of 31 authorities who it said would be ready for MiFID II’s implementation on 3 January 2018.
Out of those 27 positively assessed, 22 were also positively assessed on their supervision of the compliance function’s advisory role.
In the review, ESMA said: “[ESMA] found diversity in the supervisory approaches applied by NCAs, showing a different reliance on the compliance function as a key source of information on the firm’s compliance with MiFID requirements.”
“In the scope of this peer review, certain NCAs applied a more robust process than others, relating to certain aspects of the guidelines. Different emphasis observed at NCAs often originated from national market specificities.”
ESMA added: “For many authorities, the compliance function was generally not the main target in supervisory reviews but an ancillary target of supervision of firms’ obligations under MiFID.”
Despite ESMA’s investigations, some authorities, such as Finanstilsynet, the Norwegian supervisory authority, expressed concern earlier this month that some EEA members “remain in the dark” over the EU’s authority to impose MiFID II.
In a statement on the country’s regulatory roadmap, Finanstilsynet said: “[We] will in the near future adopt the Norwegian regulations as announced. However, much uncertainty relates to ESMA’s assessment of the EEA legal basis for ESMA's treatment of Norwegian trading venues and investment firms.”
For EEA members, ongoing equal treatment is dependant on the decisions of ESMA.
ESMA will be responsible for adding Norwegian financial services to its list of institutions that meet necessary requirements related to MiFID II, immediately after the implementation date.
Finanstilsynet’s concerns highlight problems that other third-party members and neighbouring economies will face in the future, such as the UK, which will face similar issues in the years to come amidst the uncertainty surrounding Brexit negotiations.
The UK’s Financial Conduct Authority has indicated it will accept a soft roll out of MiFID II, come January.
ESMA made the statement in its review on the guidelines of certain aspects of the compliance function under MiFID II, published 29 November.
Though Cyprus, Iceland and the Netherlands showed some faults in their approaches, ESMA stated that there was, overall, “a high level of compliance by the majority of European economic areas (EEA) national competent authorities”.
ESMA said those countries who did not identify good practices, would be consulted by ESMA on how they can make improvements in time for the MiFID II deadline.
The guidelines in the review studied national competent authorities (NCAs) supervision of investment firms’ compliance functions from July 2014 to June 2016.
The assessment also involved on-site visits of the NCAs from Austria, Cyprus, Denmark, France and Slovakia.
ESMA specifically reviewed how those NCAs carried out risk assessments, monitored compliance obligations and how their reports were made to senior management.
The review “positively assessed” 27 NCAs out of 31 authorities who it said would be ready for MiFID II’s implementation on 3 January 2018.
Out of those 27 positively assessed, 22 were also positively assessed on their supervision of the compliance function’s advisory role.
In the review, ESMA said: “[ESMA] found diversity in the supervisory approaches applied by NCAs, showing a different reliance on the compliance function as a key source of information on the firm’s compliance with MiFID requirements.”
“In the scope of this peer review, certain NCAs applied a more robust process than others, relating to certain aspects of the guidelines. Different emphasis observed at NCAs often originated from national market specificities.”
ESMA added: “For many authorities, the compliance function was generally not the main target in supervisory reviews but an ancillary target of supervision of firms’ obligations under MiFID.”
Despite ESMA’s investigations, some authorities, such as Finanstilsynet, the Norwegian supervisory authority, expressed concern earlier this month that some EEA members “remain in the dark” over the EU’s authority to impose MiFID II.
In a statement on the country’s regulatory roadmap, Finanstilsynet said: “[We] will in the near future adopt the Norwegian regulations as announced. However, much uncertainty relates to ESMA’s assessment of the EEA legal basis for ESMA's treatment of Norwegian trading venues and investment firms.”
For EEA members, ongoing equal treatment is dependant on the decisions of ESMA.
ESMA will be responsible for adding Norwegian financial services to its list of institutions that meet necessary requirements related to MiFID II, immediately after the implementation date.
Finanstilsynet’s concerns highlight problems that other third-party members and neighbouring economies will face in the future, such as the UK, which will face similar issues in the years to come amidst the uncertainty surrounding Brexit negotiations.
The UK’s Financial Conduct Authority has indicated it will accept a soft roll out of MiFID II, come January.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
