The European Securities and Markets Authority (ESMA) has advised the European Commission to move to stage three of the phase-in for the transparency requirements for RTS 2 under the second Markets in Financial Instruments Directive/Markets in Financial Instruments Regulation (MiFID II/MiFIR) suitability requirements.
ESMA published the proposal in its MiFID II/MiFIR Annual Review Report in which it also outlined suggestions for the European Commission to move to stage three for the pre-trade size specific to the instrument threshold for bonds.
The proposal to move to stage three is “expected to improve the currently limited pre- and post-trade transparency available to market participants in the bond market”, ESMA said.
In addition, the authority also proposed that the European Commission refrain from moving to stage two of the phase-in for the transparency requirements for the pre-trade size, specific to the instrument threshold for other non-equity instruments.
ESMA said that there was still insufficient data, in terms of quality and completeness, to perform the annual transparency calculations in 2020 for a number of instrument classes. Consequently, it advised that the move to stage two should be postponed.
It has released its MIFID II/MIFIR annual review report under Commission Delegated Regulation (EU) 2017/583 (RTS 2).
ESMA has also published the results of the 2020 Common Supervisory Action (CSA) regarding MiFID II suitability requirements, in which it outlined shortcomings and areas of improvement European firms could make.
In the CSA, ESMA indicated that a number of shortcomings and areas for improvement have emerged in the requirements introduced by MiFID II, most notably the requirement to consider the cost and complexity of equivalent products, along with the costs and benefits of switching investments and suitability reports.
Despite this, the 2020 CSA did find that European firms' were already widely compliant with key elements of the suitability requirements that were already regulated under MiFID I — notably the understanding of products and clients and their processes and procedures to ensure the suitability of investments.
First launched in February 2020, the CSA’s purpose is to monitor national competent authorities’ (NCAs’) supervisory activities to assess the application of MiFID II suitability rules across the EU.
The CSA is also an opportunity to strengthen the ongoing exchange of supervisory knowledge and experience among NCAs, ESMA said.
The association said this update will revise some areas where a lack of convergence has emerged or where further clarification to some of the new MiFID II requirements is needed.
ESMA will use the CSA to assist its future updates of MiFID II guidelines in 2021 and 2022.
Based on the results of the CSA, NCAs will undertake follow-up actions on individual cases, if needed, to ensure that regulatory breaches as well as other shortcomings or weaknesses identified are remedied.
