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Arbitration trends in the Middle East: What to expect in 2024 and beyond
The last several years have seen rapid growth in the Middle East.
A round up of recent regulatory developments in the EU and UK. To receive daily or weekly updates on regulatory developments subscribe to our blog, regulationtomorrow.com.
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FCA speech – locking down market abuse |
On 8 March 2021, the Financial Conduct Authority (FCA) published a speech by its Executive Director of Enforcement and Market Oversight, Mark Steward, at the Expert Forum: Market Abuse 2021. Key points include: Volumes and STORs
Market Monitoring, Short Positions etc
Cleanliness
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Commission roadmap on CSDR |
On 8 March 2021, the European Commission (Commission) issued a roadmap seeking views on how central securities depositories (CSDs) are working. In particular, the Commission is seeking views on:
The Commission 2021 Work Programme and the 2020 Capital Markets Union (CMU) Action Plan announced that the Commission will consider amending existing rules to simplify the Central Securities Depositories Regulation (CSDR) and contribute to the development of a more integrated post-trading landscape in the EU (CSDR REFIT). CSDR REFIT will build on the conclusions of a Commission report to be published in the first half of 2021. That report is required under Article 75 of the CSDR and will also cover the requirement to conduct a comprehensive assessment of the potential supervision of third-country CSDs by the European Securities and Markets Authority (ESMA) as required by Article 81(2c) of Regulation (EU) No 1095/2010. The impact assessment underpinning the roadmap will be prepared in parallel with the evaluation of the CSDR. The deadline for comments is 5 April 2021. |
FCA publishes equity transparency results |
On 9 March 2021, the FCA published the annual transparency calculations for UK equity and equity-like financial instruments which take effect on 1 April 2021. The calculations include the:
The FCA states that the published calculations reflect the approach set out in its December Supervisory Statement where the regulator said that until further notice it would regard the shares of EU issuers who have not sought admission to trading in the UK as illiquid and subject to the pre-trade and post-trade LIS thresholds associated with having ADT of under 50,000. However, the FCA adds that where there are discrepancies in the published results, the approach outlined in paragraph 27 of the Supervisory Statement should prevail. The FCA also states that the annual calculations do not change what it said about tick sizes in paragraphs 54 and 55 of the Supervisory Statement. For EU shares, trading venues and systematic internalisers (SIs) can use the ADNTE figure published by the European Securities and Markets Authority to determine the tick size where it is larger than the published ADNTE. The FCA has also published the SMS of equity instruments for the purposes of the pre-trade transparency regime for SIs. This differs from the approach set out in an earlier Statement of Policy because the FCA has the capability to publish calculations. |
FCA Feedback Statement and Statement of Policy: the exercise of the FCA’s powers under Article 23D BMR |
On 5 March 2021, the FCA issued a Feedback Statement regarding the exercise of its powers under Article 23D of the onshored Benchmarks Regulation (BMR). Article 23D of the BMR grants the FCA the ability, in certain circumstances, to impose certain requirements on the administrator of a critical benchmark designated under Article 23A. Article 23F(1)(d) of the BMR requires the FCA to prepare and publish a Statement of Policy on how it will exercise its powers under Article 23D. In November 2020, the FCA published a consultation setting out its proposed policy approach in respect of applying the Article 23D requirements to a benchmark that has been designated as an Article 23A benchmark. The Feedback Statement now published summarizes the feedback the FCA received to the consultation and its response. The FCA has also published its Statement of Policy for Article 23D, fulfilling the requirement at Article 23F(1)(d). The FCA is confirming in the Statement of Policy that it will include consideration of the factors that it outlined in its earlier consultation. In addition, after reviewing the responses, it has expanded some of the considerations that underpin the factors that were proposed. The FCA will conduct a further consultation in Q2 2021 about its prospective decisions on whether and how to use the Article 23D powers in respect of certain LIBOR currency-tenor settings. The FCA will be seeking to give all users of LIBOR, including those outside the UK, an opportunity to engage. |
FCA update on the Double Volume Cap |
On 4 March 2021, the FCA published a revised version of its Statement of Policy regarding suspending the use of pre-trade transparency waivers for a trading venue for the purposes of the Double Volume Cap (DVC) under Article 5(3B) of the onshored. Markets in Financial Instruments Regulation (UK MiFIR). The DVC limits the level of dark trading to a certain proportion of total trading in an equity. UK MiFIR gives the FCA the power to make and renew suspensions of waivers under the DVC without undertaking and publishing the calculations of whether trading has exceeded the 4 and 8 per cent thresholds. Under this power, the FCA may suspend the use of a waiver for a period of up to six months and may renew a suspension where it feels that the circumstances which led it to impose the suspension of a waiver continue to exist. In December, the FCA announced that it would not automatically apply the DVC to UK equities and it is now extending this to all equities. The Statement of Policy explains that the FCA may exercise the power to suspend pre-trade transparency waivers to ensure that its use does not unduly harm price formation if it considers it necessary to advance its integrity objective under section 1D of the Financial Services and Markets Act 2000 (FSMA). In deciding whether that test has been met the FCA:
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ESMA guidelines on disclosure requirements under the Prospectus Regulation |
On 4 March 2021, ESMA published guidelines that are based on Article 20(12) of the Prospectus Regulation and Article 16(1) of the ESMA Regulation. The guidelines apply to Member State competent authorities and market participants and are intended to establish consistent, efficient and effective supervisory practices among Member State competent authorities when assessing the completeness, comprehensibility and consistency of information in
prospectuses as well as to ensure the common, uniform and consistent application of the disclosure requirements set out in Commission Delegated Regulation (EU) 2019/980 of 14 March 2019. Among other things ESMA recommends that issuers involve financial reporting experts in order to ensure that the financial information in prospectuses satisfies the requirements set out in the guidelines, as well as the general obligation in Article 6(1) of the Prospectus Regulation to ensure that the prospectus contains the information necessary for investors to make an informed assessment of the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor. Likewise, Member State competent authorities should ensure that their supervisors are familiar with the contents of the guidelines and that expertise in financial reporting is available to deal with issues that arise when applying the guidelines. The guidelines apply from two months after the date of their publication on ESMA’s website in all official languages of the EU. |
FCA Announcement on cessation of LIBOR and ISDA’s statement |
On 5 March 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:
The end-June 2023 deadline for the cessation of US dollar LIBOR follows the ICE Benchmark Administration (IBA) consultation last December. The FCA acknowledges that this announcement will engage certain contractual triggers for the calculation and future application of fallbacks that are activated by pre-cessation or cessation announcements made by the FCA in contracts. Separately, ISDA has confirmed that the FCA announcement constitutes an index cessation event under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol (Protocol) for all 35 LIBOR settings. Consequently, the fallback spread adjustments to be used in its IBOR fallbacks will be fixed as of today given the FCA’s announcement. Given that the Protocol came into effect on 25 January 2021 and that derivative contracts between counterparties which have chosen to adhere to the Protocol now incorporate these fallbacks, the fixing of the spread adjustments will provide clarity to parties. |
ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments |
On 1 March 2021, ESMA published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from 1 April 2021. The calculations made available include the:
The transparency requirements based on the results of the annual transparency calculations published from 1 March 2021 for equity and equity-like instruments will apply from 1 April 2021 until 31 March 2022. From 1 April 2022 the next annual transparency calculations for equity and equity-like instruments, to be published by 1 March 2022, will become applicable. |
ESMA proposes rules for Taxonomy-alignment of non-financial undertakings and asset managers |
On 1 March 2021, ESMA published its final report on advice under Article 8 of the Taxonomy Regulation, which covers the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD). According to Article 8(1) of the Taxonomy Regulation, undertakings required to publish non-financial information pursuant to Articles 19a and 29a of the Accounting Directive have to include information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. For this purpose, Article 8(2) of the Taxonomy Regulation requires non-financial undertakings subject to the NFRD to provide disclosure of three key performance indicators (KPIs): turnover (turnover KPI), capital expenditure (CapEx KPI) and operating expenditure (OpEx KPI) related to environmentally sustainable activities. The Taxonomy Regulation, however, does not specify any KPIs for financial undertakings (including asset managers) which are subject to the disclosure requirements for non-financial information in the Accounting Directive. Article 8(4) of the Taxonomy Regulation requires the Commission to adopt a delegated act to supplement Article 8(1) and (2) by specifying the content and presentation of the information to be disclosed pursuant to those paragraphs, including the methodology to be used in order to comply with them, taking into account the specificities of both financial and non-financial undertakings and the technical screening criteria established pursuant to the Taxonomy Regulation. The Commission is required to adopt the delegated act by 1 June 2021. ESMA’s advice on the KPIs that will be disclosed by non-financial undertakings provides the definitions that entities should use for the calculation of the three metrics namely the turnover KPI, the CapEx KPI and the OpEx KPI. The advice also sets out the content of the information that should accompany these disclosures and the level of granularity that should be provided to comply with these reporting obligations. ESMA has mainly focussed on activities that are covered by the EU Taxonomy (activities that are ‘eligible’ to qualify as environmentally sustainable for the formulation of its proposals on non-financial undertakings). On asset managers, ESMA proposes the KPI that asset managers should disclose along with a number of methodological considerations relating to the calculation of this metric. ESMA proposes the use of standardised tables for the Article 8 disclosures by non-financial undertakings and asset managers and recommends a transitional application of the Level 2 provisions. The final report will be delivered to the Commission. |
FCA MiFID II product governance review |
On 26 February 2021, the FCA issued the results of a review of product governance in a sample of 8 asset management firms. The review examined how these firms, as product providers, take MiFID II’s product governance rules into account, particularly the interests of the end clients, throughout the product lifecycle. The review found that some asset managers are not undertaking activities in line with MiFID II’s product governance regime (PROD). Key findings include:
The FCA states that it’s likely it will undertake further work in this area. Part of this may be to consider whether it needs to make further changes to its product governance rules and guidance for both asset managers/manufacturers and distributors. The regulator will also consider whether these changes will better address the key sources of harm throughout the product lifecycle. The FCA expects firms to ensure their activities prioritise good customer outcomes and that they comply with the relevant regulatory rules and requirements. Where the FCA identifies potential breaches of its rules, it will consider whether it needs to take action, which may include opening investigations or other appropriate measures. |
ESAs issue recommendations on the application of the Regulation on sustainability-related disclosures |
On 25 February 2021, ESMA published a joint supervisory statement designed to mitigate the risk of divergent application of the Regulation on sustainability related disclosures in the financial sector (SFDR) from 10 March 2021 to the application date of the regulatory technical standards (RTS) on the content, methodologies and presentation of sustainability-related disclosures. The joint statement provides that for the sake of applying the provisions of the SFDR without the RTS during the interim period, Member State national competent authorities are encouraged to refer financial market participants and financial advisers to the requirements set out in the draft RTS of the final report that the European Supervisory Authorities (ESAs) submitted to the Commission on 4 February 2021. The draft RTS can be used as a reference for the purposes of applying the provisions of Articles 2a, 4, 8, 9 and 10 of the SFDR in the interim period. The joint statement adds that it is important to note that the draft RTS still have to be adopted by the Commission and that the European Parliament or the Council may object to the draft RTS within a period of three months from the date of notification of the RTS adopted by the Commission. Therefore, the final RTS may be different to the draft RTS in the ESAs’ final report. Nevertheless, the ESAs recommend that Member State national competent authorities encourage financial market participants and financial advisers to use the interim period from 10 March 2021 until 1 January 2022 to prepare for the application of the final RTS. The ESAs have also set out in the annex to the joint statement more specific guidance as a reminder of the application timeline of some of the specific provisions of the SFDR, the Taxonomy Regulation and the related RTS. |
PRA and FCA statements on the definition of ‘higher paid material risk taker’ |
On 25 February 2021, the Prudential Regulation Authority (PRA) issued a statement on its website regarding an error it has identified in the Remuneration Part of the PRA Rulebook. The error relates to the ‘higher paid material risk taker’ definition in Rule 1.3 in the Remuneration Part of the PRA Rulebook. The ‘higher paid material risk taker’ definition currently sets the requirement that an individual would be treated as a ‘higher paid material risk taker’ when their:
The PRA has identified that this is an error. An individual should instead be treated as a ‘higher paid material risk taker’ where either condition (a) or (b) is satisfied. This is in line with the PRA’s position outlined in Consultation Paper 12/20 Capital Requirements Directive V (CRD V) and Policy Statement 26/20 Capital Requirements Directive V (CRD V). As the error in the rule has been identified, the PRA intends to consult on amending the rule at the earliest opportunity. In the meantime, it expects firms to treat individuals as ‘higher paid material risk takers’ where either condition (a) or (b) has been satisfied. The FCA has also issued a short statement on its webpage dealing with Policy Statement 20/16: Updating the Dual-regulated firms Remuneration Code to reflect CRD V. The FCA states that it intends to consult at the next suitable opportunity to make a corresponding amendment to the Dual-regulated firms Remuneration Code. This is to ensure that its remuneration requirements for dual-regulated firms remain consistent with the PRA’s approach. |
Commissioner McGuinness speech, ‘What Vision for Europe?’ |
On 23 February 2021, the Commission published the speech that Commissioner McGuinness gave at the European Parliamentary Financial Services Forum Winter Conference, ‘What vision for Europe?’ Key points in the speech include:
The European Green Deal will be vital for the EU’s economic recovery. Later this year the Commission will present a Renewed Sustainable Finance Strategy. It will also review the non-financial reporting directive, and present an EU Green Bond Standard. The EU and the UK committed in the Joint Declaration to establish a framework for regulatory cooperation in financial services by March 2021. Once the Commission agrees with the UK on the working arrangements for the future relationship, the Commission will turn to resuming its unilateral equivalence assessments, using the same criteria as for all third countries, including anti-money laundering (AML) and tax cooperation. |
Share trading obligation – Swiss shares |
On 3 February 2021, HM Treasury issued guidance confirming that its decision under the share trading obligation (STO) for Switzerland, which was laid before Parliament on 13 January 2021, was in force. HM Treasury states that the decision means that UK firms can meet their obligations under the STO on BX Swiss AG and SIX Swiss Exchange AG. HM Treasury adds that Switzerland has also reciprocated by removing restrictions on UK trading venues. As a result, UK venues can register with The Swiss Financial Market Supervisory Authority (FINMA) in order to trade Swiss shares. FINMA has published guidance on this topic as well as an updated list of recognised trading venues. |
ESMA provides input to the Commission on improvements for ELTIFs |
On 3 February 2021, ESMA published a letter it had sent to the Commission concerning the review of the European Long Term Investment Funds (ELTIF) Regulation. In the letter ESMA highlights some areas of the ELTIF Regulation where improvements could be made. ESMA has issued the letter in light of the impending review of the ELTIF Regulation, and as a response to an earlier letter which it received from the Commission on the functioning of the ELTIF framework. The letter is also intended to meet the request for input from ESMA as per Article 37 of the ELTIF Regulation. In terms of areas of the ELTIF Regulation where amendments could be made ESMA highlights the following:
When discussing possible changes to eligible assets and investments ESMA suggests, among other things, clarifying the definition of “real asset” (Article 2(6) of the ELTIF Regulation). In particular, ESMA states that the nature of real estate referred to in this article could be clarified. ESMA also states that the definition of a “long term investment project that contributes to the Union objective of smart, sustainable and inclusive growth” could be clarified in relation to sustainable growth by reference to contribution to environmentally sustainable economic activities in accordance with Regulation (EU) 2020/852 (Taxonomy Regulation). Following consultation, the Commission is expected to submit to the European Parliament and Council a report assessing the functioning of ELTIFs in the context of the Capital Markets Union project and suggesting a review of the ELTIF Regulation. |
ESMA finalises rules on standardised information to facilitate cross-border distribution of funds |
On 1 February 2021, ESMA published a final report on implementing technical standards (ITS) under the Regulation on cross-border distribution of funds. The final report follows a consultation paper that ESMA published in March 2020 on the proposed draft ITS relating to the publications to be made by Member State national competent authorities on their websites. However, the consultation paper did not cover draft ITS on the communication of information by Member State national competent authorities to ESMA, nor draft ITS relating to the central database on the cross-border marketing of alternative investment funds and UCITS and on the related notification portal. This was on the basis that the content of the ITS related to the bilateral relationship between the Member State national competent authorities and ESMA. However, the final report includes these draft ITS. The draft ITS relating to publications to be made by Member State national competent authorities largely reflect those that were consulted on, focussing on the information to be published by such authorities’ websites regarding the national rules governing marketing requirements for funds, and the regulatory fees and charges levied in relation to fund managers’ cross-border activities. The draft ITS set out in the final report have been submitted to the Commission for endorsement. From the date of submission, the Commission shall take a decision on whether to adopt the draft ITS within three months. The Commission may extend that period by one month. |
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The last several years have seen rapid growth in the Middle East.
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On May 29, 2024, South Africa heads to the polls, and following the substantial legislative reform brought on by the New Nation Movement judgment, voters can vote for an independent candidate for the first time.
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