Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Securities and Markets Authority Requests a Review of its Sanctioning Powers Under the European Market Infrastructure Regulation 
Financial Regulatory Developments Focus
  • European Securities and Markets Authority Requests a Review of its Sanctioning Powers Under the European Market Infrastructure Regulation 
    The European Securities and Markets Authority published an open letter to the European Commission asking it to consider several issues relating to its supervisory and sanctioning powers under the European Market Infrastructure Regulation and emphasizing similar aspects relating to Credit Rating Agencies. The letter follows the Commission's Report, published on November 23, 2016, assessing the issues arising from the implementation of the requirements of EMIR in which the Commission proposed a legislative review of EMIR in 2017. ESMA submitted four reports to the Commission in 2015 on the functioning of EMIR which included recommendations on how EMIR could be enhanced. The letter highlights the areas in those reports that ESMA considers the Commission should consider as part of the EMIR review this year. 

    ESMA recommended in 2015 that its sanctioning powers and the level of trade repository fines should be increased by 10 times to make them more comparable with those in place for Credit Ratings Agencies. ESMA requests the inclusion of the following enhanced supervisory tools: (i) the possibility for ESMA to oppose material changes to the conditions of registration; (ii) an obligation for TRs to submit periodic information to ESMA; and (iii) sanctions for the breaches of the obligation to notify periodic information and material changes to the conditions of registration. ESMA also identifies what it views as some essential additional requirements for TRs relating to data quality and data access which should be included as part of the reporting requirement, such as an alignment with the Securities Financing Transactions and Re-use Regulation logic of reporting the trade by both counterparties, but with certain exemptions (for instance, non-financial counterparties).

    ESMA also highlights other recommendations made in its four reports, such as amendments to the clearing obligation framework and a review of the language of Articles that set the default management and protections, redefining and recalibrating the categories of large and small NFCs and their related obligations, improving the transparency and predictability of margin requirements, and revising the third country CCP recognition framework to put in place a timely and risk based process. 

    ESMA submitted to the Commission two sets of technical advice and a report on the regulation of CRAs on October 2, 2015. The papers provide an overview of the industry and the impact of specific provision of the CRA Regulation. The Commission published a report on October 19, 2016, which assessed the state of the credit rating market including issues of competition and governance. Further to the CRA reports, ESMA highlights amendments equivalent to those proposed for EMIR, including an extension of the types of enforcement decisions that can be adopted by ESMA. 

    View the letter.