Eva Dauberton
News Editor
ESMA consults on RTS on order execution policies under MiFID II
The European Securities and Markets Authority (ESMA) has launched a consultation on draft regulatory technical standards (RTS) specifying the criteria for how investment firms establish and assess the effectiveness of their order execution policies. This consultation falls under the Markets in Financial Instruments Directive (MiFID II) review.
Some context
Article 27 of MiFID II mandates that investment firms take all necessary steps to achieve the best possible result when executing client orders, considering factors such as price, costs, and speed of execution. This includes the requirement for firms to describe their processes to achieve best execution, the so-called 'order execution policies', and to implement them.
However, ESMA observed that the actual implementation has shown shortcomings and areas for improvement. Some firms:
- Did not provide sufficiently documented analytical efforts to justify their choice of execution venues.
- Did not properly demonstrate that they executed client orders in accordance with their order execution policies.
- Disclosed publicly only rather generic information about their order execution policy and the steps taken to obtain the best possible result when executing client orders.
Feedback from national competent authorities and stakeholders during the legislative procedure for the MiFID II review has also indicated the need for further clarification of the requirements. The draft RTS aim to address these issues.
Key takeaways
ESMA is seeking stakeholder input on the following:
- The establishment of an investment firm’s order execution policy. This includes the classification of financial instruments in which firms execute client orders and the initial selection of venues for the order execution policy.
- The investment firm’s procedures to monitor and regularly assess the effectiveness of its order execution arrangements and order execution policy.
- The investment firm’s execution of client orders through own account dealing.
- How an investment firm should deal with client instructions.
Next steps
The deadline for feedback is 16 October 2024. ESMA is expected to submit these RTS to the European Commission by 29 December 2024.
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EBA report shows that gender pay gap persists
The European Banking Authority (EBA) has released a report focusing on the implementation of gender-neutral remuneration policies by institutions and investment firms.
In the report, the EBA notes that:
- Some entities still lacked a gender-neutral remuneration policy, did not conduct annual policy reviews, did not monitor whether the remuneration policy is indeed applied in a gender-neutral way and did not calculate the gender pay gap or did not provide such information to the public, falling short of supervisory expectations.
- Already 85% of institutions but only 62.6% of investment firms monitor the representation of women and that already 79.9% of institutions but only 60.6% of investment firms regularly review the gender pay gap.
- Institutions and investment firms' observations point to the persistence of a gender pay gap, indicating that further work is needed to ensure ‘equal opportunities’ and that biases require further attention.
- While existing regulations provide a suitable legal framework to ensure gender-neutral remuneration policies and equal opportunities, the level of transparency on gender-neutral remuneration and diversity metrics could be improved.
The EBA will consider the extent to which this report's findings may need to be reflected in the future review of the relevant EBA policy products.
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EBA report on the application of derogations to the deferral and pay out in instruments under CRD
The European Banking Authority (EBA) has published a report on the application of derogations under Article 94(3) and (5) of the Capital Requirements Directive (CRD) concerning the requirements to pay out the variable remuneration of identified staff partly under deferral arrangements and in instruments
that are available to small and non-complex institutions and for identified staff receiving only a relatively small amount of variable remuneration.
The report aims to assess the implementation and application of derogations within the EU and their impact on costs, risk alignment of variable remuneration to the institution's risk profile, and staff recruitment and retention. It forms part of the EBA’s contribution to the review to be performed by the European Commission.
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APRA releases minor updates to prudential regulation framework for ADIs and insurers
The Australian Prudential Regulation Authority (APRA) has published finalised minor updates to the prudential framework for authorised deposit-taking institutions (ADIs) and insurers. These updates are technical clarifications and are not material changes in policy settings.
A consultation on the next round of minor updates is planned for the second half of 2024.
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APRA publishes amendments to quarterly insurance statistical publications
The Australian Prudential Regulation Authority (APRA) has released its response to submissions on proposed enhancements to the content and presentation of its suite of quarterly industry aggregate insurance statistical publications. These changes align with the adoption of the Australian Accounting Standards Board 17 Insurance Contracts (AASB 17) and updates to the capital framework for private health insurers, which came into effect on 1 July 2023.
Key takeaways
In its response, APRA emphasised the importance of interpreting the data in conjunction with the latest APRA reporting standards and the new AASB 17 accounting standards.
The changes include:
- All financial and capital data will be published in the Quarterly private health insurance performance statistics.
- APRA has moved the existing membership and benefits summary statistics into a stand-alone publication, Quarterly private health insurance statistics, to ensure that this data remains available to stakeholders. For the June 2024 reference period, this publication will be renamed to the Quarterly Private Health Insurance Membership and Benefits Summary Statistics to reflect the revised content of the publication.
There are no changes to statistics on detailed membership, benefits, coverage, medical gap, prostheses and medical services data.
Next steps
APRA plans to release the first edition of the enhanced quarterly insurance statistics in August 2024, including data from the reporting periods of September 2023, December 2023, and March 2024.
At a later date, APRA also intends to consult on the following:
- The confidentiality of data collected under the new insurance reporting standards.
- Changes to APRA’s other insurance publications.
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FSB consults on cross-border payments recommendations
The Financial Stability Board (FSB) has released a consultation on its proposed recommendations to enhance harmonisation in data frameworks related to cross-border payments and ensure uniformity in the regulation and supervision of both bank and non-bank payment service providers.
The consultation is based on priority actions outlined in the G20 Roadmap aimed at addressing legal, supervisory, and regulatory obstacles in cross-border payments to support the achievement of quantitative targets by 2027.
The deadline for feedback is 9 September 2024.
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ADGM finalises whistleblowing framework
Abu Dhabi Global Market (ADGM) has announced the publication of its whistleblowing framework. The new framework includes:
- Specific regulations to ensure protection for those who report issues in good faith.
- Internal and external channels to allow for reporting of suspected breaches or financial crimes.
- Protection for reports made anonymously.
- New non-retaliation protections for amployees of ADGM regulated firms.
- Good governance practices.
- Requirements to ensure written policies and procedures are mandatory for FSRA-licensed firms, designated non-financial businesses or professions (DNFBPs) and large ADGM entities.
All ADGM entities are required to adopt the framework by 31 May 2025.
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