This Wednesday the European Securities and Markets Authority (ESMA
ESMA
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t
Read this Term), a European regulator, released its first annual report detailing the supervisory measures carried out by national competent authorities (NCAs) under the European Market Infrastructure Regulation
Regulation
Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (
Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (
Read this Term (EMIR).
As with almost every document ever released by ESMA, today’s report is filled with a plethora of acronyms and nebulous language. In essence, the report details what steps NCAs (i.e., regulatory bodies) have taken to ensure firms comply with reporting obligations, set out by EMIR, regarding over-the-counter (OTC) derivatives contracts.
Launched in 2014, EMIR’s reporting standards require that both counterparties opening an OTC derivatives contract report the trade. This must be done even if one of the counterparties is not covered by EMIR.
All reports must be given to a registered trade repository (TR). A number of firms, who will be familiar to the industry layman, have set up trade repositories. These include, but are not limited to, Bloomberg, CME, and NEX.
On top of these reporting obligations, financial firms must clear any derivative contract in which they are a counterparty through a central clearing counterparty (CCP). As with TRs, a number of well-known firms, such as Nasdaq and Euronext, have set up CCPs to help firms meet clearing obligations.
Unanimity or no unanimity?
Keeping all of this in mind, today’s report details how NCAs have managed to ensure firms meet reporting standards and clearing obligations.
With regard to reporting standards, ESMA found a high level of unanimity in the approach NCAs take to ensure compliance. The European regulator noted that 92 percent of NCAs used data taken from TRs to ensure firms were meeting their regulatory reporting obligations.
TRs were less useful, but still widely used, for ensuring firms met their clearing obligations. ESMA noted that 72 percent of NCAs used TR data to ensure firms were clearing their OTC derivatives contracts appropriately.
What of the remaining firms that didn’t use TRs as a means of testing compliance for one or both parts of the regulation? It seems that they went straight to the firms themselves.
In fact, NCAs appear to have used both TR data and information taken directly from firms. Of the NCAs that submitted data, 76 percent of them used data taken directly from firms to ensure compliance for both clearing and reporting regulatory requirements.
Disparate fines
ESMA did outline one area of concern in its report - fines and sanctions. It noted that there was no unanimity in the application of fines across the various jurisdictions it covers.
For example, today’s report states that NCAs are willing to apply fines that range in size from €125 ($147) to €100 million (€117.57 million). The European regulator further stated that only seven of the thirty-one jurisdictions covered would be willing to apply criminal sanctions to firms that did not meet EMIR’s standards.
Today’s report also noted that sanctions have only been applied on three occasions, reflecting either a high level of adherence or, less likely, poor levels of supervision. The Italian Commissione di Vigilanza sui Fondi Pensione has issued two fines, one of €105,000 ($123,550) and another of €60,000 euros ($70,600).
The other, and more famous of the three fines came in October of 2017 when the UK’s Financial Conduct Authority (FCA) clamped down on Merrill Lynch International, a wealth management firm. The FCA stated that Merrill Lynch had failed to meet EMIR’s reporting standards and fined the firm £34.5 million ($46.02 million).
This Wednesday the European Securities and Markets Authority (ESMA
ESMA
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t
Read this Term), a European regulator, released its first annual report detailing the supervisory measures carried out by national competent authorities (NCAs) under the European Market Infrastructure Regulation
Regulation
Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (
Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (
Read this Term (EMIR).
As with almost every document ever released by ESMA, today’s report is filled with a plethora of acronyms and nebulous language. In essence, the report details what steps NCAs (i.e., regulatory bodies) have taken to ensure firms comply with reporting obligations, set out by EMIR, regarding over-the-counter (OTC) derivatives contracts.
Launched in 2014, EMIR’s reporting standards require that both counterparties opening an OTC derivatives contract report the trade. This must be done even if one of the counterparties is not covered by EMIR.
All reports must be given to a registered trade repository (TR). A number of firms, who will be familiar to the industry layman, have set up trade repositories. These include, but are not limited to, Bloomberg, CME, and NEX.
On top of these reporting obligations, financial firms must clear any derivative contract in which they are a counterparty through a central clearing counterparty (CCP). As with TRs, a number of well-known firms, such as Nasdaq and Euronext, have set up CCPs to help firms meet clearing obligations.
Unanimity or no unanimity?
Keeping all of this in mind, today’s report details how NCAs have managed to ensure firms meet reporting standards and clearing obligations.
With regard to reporting standards, ESMA found a high level of unanimity in the approach NCAs take to ensure compliance. The European regulator noted that 92 percent of NCAs used data taken from TRs to ensure firms were meeting their regulatory reporting obligations.
TRs were less useful, but still widely used, for ensuring firms met their clearing obligations. ESMA noted that 72 percent of NCAs used TR data to ensure firms were clearing their OTC derivatives contracts appropriately.
What of the remaining firms that didn’t use TRs as a means of testing compliance for one or both parts of the regulation? It seems that they went straight to the firms themselves.
In fact, NCAs appear to have used both TR data and information taken directly from firms. Of the NCAs that submitted data, 76 percent of them used data taken directly from firms to ensure compliance for both clearing and reporting regulatory requirements.
Disparate fines
ESMA did outline one area of concern in its report - fines and sanctions. It noted that there was no unanimity in the application of fines across the various jurisdictions it covers.
For example, today’s report states that NCAs are willing to apply fines that range in size from €125 ($147) to €100 million (€117.57 million). The European regulator further stated that only seven of the thirty-one jurisdictions covered would be willing to apply criminal sanctions to firms that did not meet EMIR’s standards.
Today’s report also noted that sanctions have only been applied on three occasions, reflecting either a high level of adherence or, less likely, poor levels of supervision. The Italian Commissione di Vigilanza sui Fondi Pensione has issued two fines, one of €105,000 ($123,550) and another of €60,000 euros ($70,600).
The other, and more famous of the three fines came in October of 2017 when the UK’s Financial Conduct Authority (FCA) clamped down on Merrill Lynch International, a wealth management firm. The FCA stated that Merrill Lynch had failed to meet EMIR’s reporting standards and fined the firm £34.5 million ($46.02 million).
