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FIG Top 5 at 5 - 25/05/2023

DATE: 25/05/2023

1. Central Bank of Ireland Building resilience in markets - Remarks by Deputy Governor Vasileios Madouros

On 16 May 2023, Deputy Governor of the Central Bank of Ireland ("Central Bank"), Vasileios Madouros ("Deputy Governor") gave a speech entitled 'Building Resilience in Markets' at the Managed Funds Association Global Summit. The Deputy Governor focused his speech on the structural changes the financial system has undergone in recent years and the effects of these changes on the market, particularly in times of stress.  The Deputy Governor also emphasised that strengthening the resilience of non-bank finance improves market functioning which in turn entails benefits for investors and the broader economy.  The following is a brief outline of the key takeaways from his speech:

The benefits of market based financing

The Deputy Governor argued that in financial systems which are heavily reliant on bank financing, such as the system in Europe, increasing the level of capital markets financing benefits both the economy and wider society as it facilitates risk sharing, portfolio diversification and economic activity.  It was noted that the deepening of capital markets across the EU is a policy objective of the Capital Markets Union ("CMU") and in order for a full CMU to be achieved, market-based financing will become increasingly important.  The Deputy Governor also highlighted the fact that the share of total financial sector assets held by Euro area banks has decreased by roughly one third since the period before the financial crisis and market-based financing has more than doubled throughout the same period.

The need for resilience in markets

The Deputy Governor introduced a caveat for achieving the abovementioned benefits of market based financing, namely that it is a "critical precondition that markets are resilient in the fact of adverse shocks".   The March 2020 liquidity crisis and last year's disruption to the GILT market in the UK were cited as examples where the market was disrupted by exogenous events but that these events were magnified by vulnerabilities within the financial system.  The Deputy Governor contended that the failure of the markets to privately self-insure meant that central banks had to publically intervene which is not optimal from a public policy perspective.

Markets as an ecosystem

The Deputy Governor welcomed the fact that the Financial Stability Board ("FSB") is approaching the issues of liquidity demand and supply in a holistic manner. 

The macro-prudential perspective

The Deputy Governor stated that the strengthening of non-bank financial intermediation is at the forefront of the thinking at the Central Bank, given the size of the sector in Ireland, particularly in the context of asset management.  While investor protection remains key, the Deputy Governor argues that a macro-prudential perspective is needed in Ireland as this can strengthen the resilience of markets and non-banks.  The following principles were provided by the Deputy Governor to guide the path towards increased macro-prudential regulation:

  1. focus on cohorts of funds: due to the size and diversity of the funds sector, there can be no 'one-size-fits-all' approach however the Deputy Governor argues that the collective impact of individually rational behaviour across a cohort of funds can cause disruptions in core markets;
  2. limit underlying vulnerabilities: an underlying focus should be to identify and mitigate vulnerabilities such as leverage and liquidity transformation before they pose a risk to core markets;
  3. regulation and the evolving risk environment: the regulatory approach must not be static and instead be capable of evolving to the ever-changing risk environment; and
  4. international coordination is critical: to avoid risk shifting across borders, the Deputy Governor highlights that international co-operation among regulators is vital.

2. European Commission amends list of high-risk third countries under MLD4

On 17 May 2023, the European Commission ("Commission") adopted a Delegated Regulation amending the list of high-risk third countries presenting strategic deficiencies in their anti-money laundering/countering the financing of terrorism ("AML/CFT") regimes.

Under Article 9 of Directive (EU) 2015/849 ("MLD4"), third-country jurisdictions which have strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system of the European Union ("EU") must be identified in order to protect the proper functioning of the internal market and the Commission is empowered to adopt delegated acts to identify those high-risk third countries

The Delegated Regulation:

  • adds Nigeria and South Africa to the list; and
  • removes Cambodia and Morocco from the list.

The Commission considers that Nigeria and South Africa have strategic deficiencies in their respective AML/CFT regimes and has taken into account the fact that these countries were identified in the Financial Action Task Force ("FATF")  list of ‘Jurisdictions under Increased Monitoring’ in February 2023.

The Commission notes that following review of the progress Cambodia and Morocco have made in addressing their strategic deficiencies in their respective AML/CFT regimes, based on the requirements of MLD4, both countries "no longer pose a significant AML/CFT threat to the international financial system".

Next Steps

The Delegated Regulation will enter into force after a period of scrutiny by the European Parliament and the Council of the EU over a period of one month (which can be prolonged for another month). If there is no objection, it will enter into force 20 days following its publication in the Official Journal of the EU.

3. European Investment Firms Updates

European Commission adopts Delegated Regulation on RTS on specific liquidity measurement under IFD

On 17 May 2023, the European Commission ("Commission") adopted a Delegated Regulation on regulatory technical standards ("RTS") on specific liquidity measurements under Directive (EU) 2019/2034 ("Investment Firms Directive" or "IFD").

Article 42(6) of IFD mandates the European Banking Authority ("EBA") to develop draft RTS to specify in a manner that is appropriate to the size, the structure and the internal organisation of investment firms and the nature, scope and complexity of their activities how the liquidity risk and elements of liquidity risk are to be measured. The EBA submitted the draft RTS to the Commission in November 2022.

In order to have a harmonised application of the specific liquidity requirements, these RTS address in detail the main elements that may affect the liquidity risk of an investment firm. In particular, competent authorities will have to assess: 

  • all elements specific to each service provided by the investment firm under Directive 2014/65/EU ("MIFID II");  and
  • other elements that could have a material impact, such as external factors, group structure, operational or reputational risks. 

Next Steps


The Delegated Regulation will enter into force 20 days following that of its publication in the Official Journal of the European Union ("EU") (the "OJ").


Delegated Regulations amending RTS under MiFID II and MIFIR published in OJ

On 16 May 2023, the following delegated regulations were published in the OJ under MIFID II and Regulation 600/2014 ("MiFIR"):

  • MIFIR: Commission Delegated Regulation (EU) 2023/944 amends and corrects the RTS laid down in Delegated Regulation (EU) 2017/587 ("RTS 1") as regards certain transparency requirements applicable to transactions in equity instruments and Commission Delegated Regulation (EU) 2023/945 amends the RTS laid down in Delegated Regulation (EU) 2017/583 ("RTS 2") as regards certain transparency requirements applicable to transactions in non-equity instruments. These amendments relate to certain reporting fields, flags and transitional provisions.
  • MIFID II: Commission Delegated Regulation (EU) 2023/960 amends Delegated Regulation (EU) 2017/588 ("RTS 11"), in relation to the annual application date of the calculations of the average daily number of transactions for shares, depository receipts and exchange-traded funds for the purposes of the tick size regime. As reported in the FIG Top 5 at 5 from 9 February 2023, currently the calculations of the ADNT applies as of 1 April each year. The Delegated Regulation amends RTS 11 to ensure that the calculations of the ADNT apply as of the first Monday of April of each year instead. This amendment aims to align the application date of calculations in RTS 11 with the application date of calculations in RTS 1.

Next Steps

The Delegated Regulations will enter into force 20 days after publication in the OJ (5 June 2023).

4. Modelling climate change risks, a speech from Petra Hielkema, Chair of EIOPA

On 16 May 2023, Petra Hielkema, Chair of European Insurance and Occupational Pensions Authority ("EIOPA"), gave the opening address at EIOPA's public event "Opening The World of Catastrophe Models". While Ms. Heilkema's speech largely focused on the launch of EIOPA's new user interface, the Climada App, her general remarks on climate related issues are also worth noting and are detailed below.


Ms. Heilkema explained that sustainability is becoming a point of interest to many across the financial sector. Not only have firms realised that a sustainable operation can be appealing to their customers; it is often the key to the survival of their businesses. EIOPA, along with other financial regulators and supervisors, is committed to helping financial entities in tackling climate change. EIOPA has designed an ambitious sustainability agenda and has been making gradual progress toward the "creation of a more forward-looking sector, a more resilient society and a more liveable planet".

Ms. Hielkema insisted that EIOPA were not coming to the event with new sets of rules or regulations. Instead, it was there to unveil a tool that they hoped would support insurance firms in their endeavours to better measure climate change related risks as well as the potential losses arising from them. Ms. Hielkema noted the difficulties involved in measuring climate change. If done incorrectly it can "lead to misjudged risks, wrongly allocated resources and little clarity on how to adapt to and mitigate one of the greatest crises facing humanity".

Consequently, better data and tools than what are currently available are required to mitigate the negative effects of climate change through insurance underwriting and investment. As a result EIOPA has included the promotion of open-source modelling and data among its key areas of activity in EIOPA's Sustainable Finance Activities 2022-2024.


There are, however, multiple challenges in this area. Good data and modelling is very difficult to come by which concerns EIOPA. Part of EIOPA's mission is to find ways to fill these gaps as much as possible. Beyond the data gaps, there can be obstacles to using data or models when they are available. Ms. Hielkema flagged a number of such obstacles:

  • user-friendliness - while useful data has been collected and models have been created, they often go unused or underused on account of their complexity of handling; and
  • price - a sustainable finance specialist looking for data or models can run up against issues of price. Well-organised, useful data and modelling is often kept behind paywalls and not all companies can afford to pay for them.

Ms. Hielkema stated that "[d]ata models on climate-related risks are crucial to improve the accuracy of climate risk assessment for the ultimate benefit of policyholders as well as of industry, the supervisory community and the public sector in general". The speech encourages  insurers of every size and nature to confront this challenge. Part of this challenge is being addressed by EIOPA, which has resolved to share expertise and data as widely as possible.

Looking to the future:

Ms. Hielkema then introduced the tool that is the result of the collaboration between EIOPA and the Eidgenössische Technische Hochschule Zürich (a Swiss university): Climada, a state-of-the-art catastrophe model. She emphasised that EIOPA intends to make more and better models available. In fact she explained that it is EIOPA's ambition "to position itself as a data hub for relevant open-source data on risks related to climate change" by building a bridge between climate scientists and the world of finance and making open-source data more programmatically useable in the insurance field. Making data more accessible will increase innovation, democratise the use of natural catastrophe models, reduce the cost of running assessments and raise awareness of the risks in general.

5. ESAs publish Joint Annual Report for 2022

On 23 May 2023, the Joint Committee of the European Supervisory Authorities (European Banking Authority ("EBA"), European Insurance and Occupational Pensions Authority ("EIOPA") and the European Securities and Markets Authority ("ESMA") ("ESAs")) published its 2022 Annual Report, which provides an account of its joint work completed over the past year.

The Joint Committee focused on issues of cross-sectoral relevance, including joint risk assessment, sustainable finance, digitalisation, consumer protection and financial innovation, securitisation, financial conglomerates and central clearing.

1. Joint Risk Assessment: The Joint Committee prepared two Joint Risk Reports in Spring and Autumn which both highlighted increasing vulnerabilities across the financial sector and encouraged supervisors and market participants to prepare for the challenges ahead.

2. Sustainable finance: In 2022, the ESAs:

  • issued an updated Joint Supervisory Statement on the application of the Sustainable Finance Disclosure Regulation ("SFDR");
  • published a clarification on the ESAs’ draft RTS under SFDR;
  • published their first report on the extent of voluntary Principle Adverse Impact ("PAI") disclosure of investment decisions on sustainability factors;
  • published a Final Report containing RTS amending the SFDR Delegated Regulation related to disclosures in financial products of investments in fossil gas and nuclear energy;
  • published practical application Q&As providing clarifications on the SFDR Delegated Regulation; and
  • made progress in preparing of the amendment of the SFDR Delegated Regulation in response to a Commission’s mandate received in April.

3. Digitalisation: In 2022 the ESAs,

  • published a Joint Report on Digital Finance which sets out the findings and advice of the ESAs in response to the European Commission’s (the "Commission") Call for Advice on digital finance and related issues; and
  • set up a Joint Committee Sub Committee on Digital Operational Resilience to develop technical advice and draft technical standards, guidelines and recommendations mandated by the Digital Operational Resilience Act ("DORA") or the Commission to be delivered in 2023 or 2024.

4. European Forum for Innovation Facilitators ("EFIF"): In 2022, three meetings of the EFIF to facilitate information exchange and supervisory convergence in innovation in the FinTech sector in the EU were held. In 2022, EFIF finalised the Procedural Framework for Cross-Border Testing which aims to assist innovative FinTechs in their engagement with innovation facilitators cross-border through digital tools. The EFIF Work Programme for 2023 includes the development of an updated Joint ESAs Report on innovation facilitators.

5. Consumer protection and financial innovation: In 2022 the ESAs:

  • delivered their advice of the review of the Packaged Retail and Insurance-Based Investment Products ("PRIIPs") Regulation following a Call for Advice received from the Commission as part of its development of a strategy for retail investment;
  • issued a joint Supervisory Statement about the “What is this product” section of the Key Investor Document KID for PRIIPs, which provides an overview of poor practices identified and sets out the ESAs’ expectations in each area to ensure that information is presented to retail investors in an adequate, clear and accessible manner;
  • published two sets of Q&As on PRIIPs in October 2022 and one in December 2022;
  • Received reports of 10 administrative sanctions or measures under the PRIIPs Regulation from competent authorities in three Member states (Croatia, Denmark and Hungary);
  • worked on addressing the risks to consumers arising from crypto-assets including issuing a Joint Warning in March 2022;
  • actively engaged with the public, including organising a high level conference on financial education and literacy and the 9th edition of the Joint ESAs Consumer Protection Day;
  • built a thematic repository of financial education initiatives on digitalisation, focusing on cybersecurity, scams and fraud that consumers can avail themselves with to obtain helpful information to improve their financial literacy; and
  • drafted a thematic report on the implementation across the EU of national financial education initiatives on digitalization, with a focus on cybersecurity, scams, and fraud.

6. Securitisation: In 2022, the ESAs:

  • published a Joint Committee advice following a Call for Advice from the Commission to assess whether the current securitisation framework, including its prudential aspects is functioning in an optimal manner and to identify potential areas for improvement; and
  • issued a public consultation on the joint RTS on disclosure of information on sustainability indicators for simple, transparent and standardised securitisations.

7. Financial conglomerates: In 2022, the ESAs published the 2022 annual list of identified financial conglomerates. The final Implementing Technical Standards on reporting templates for conglomerates on intra-group transactions and risk concentration were published in the Official Journal of the EU in December 2022.

8. Other relevant cross-sectoral work: In 2022 the ESAs:

  • The ESAs published their Final Report on the European Market Infrastructure Regulation ("EMIR") draft Regulatory Technical Standards ("RTS") with regards to intragroup contracts; and
  • approved the draft consultation paper on the guidelines to set up a cross-sectoral system for the exchange of information on the fit and proper assessments and continued work on the related IT solution consisting of a cross-sectoral National Competent Authorities’ contact list and searchable shared database of holders of qualifying holdings, directors and key function holders assessed for fitness and propriety.