Global Trustee and Fiduciary Services Bite-Sized Issue 3 2024

Global Trustee and Fiduciary Services Bite-Sized | Issue 3 | 2024 7 QUICK LINKS AIFMD CYBERSECURITY DIGITALISATION DORA EMIR LIBOR FSB IOSCO MICA MIFID II/MIFIR MONEY MARKET FUNDS OPERATIONAL RESILIENCE SUSTAINABLE FINANCE/ESG ASIA EUROPE IRELAND LUXEMBOURG NORTH AMERICA SWITZERLAND UNITED KINGDOM ESMA Clarifies Certain Best Execution Reporting Requirements Under MiFID II On 13 February 2024, the European Securities and Markets Authority (ESMA) issued a Public Statement providing market participants with clarity concerning their reporting requirements under RTS28, pending full application of the new rules under MiFID II. In the Public Statement, ESMA says it expects National Competent Authorities (NCAs) not to prioritise supervisory actions towards investment firms relating to the periodic RTS 28 reporting obligation, from 13 February 2024 until the forthcoming transposition into national legislation in all Member States of the MiFID II review. Under the reviewed MiFID II/MiFIR framework, investment firms are no longer required to annually report detailed information on trading venues and execution quality through RTS 28 reports, and ESMA says the Public Statement will promote coordinated action by NCAs under MiFID II. However, ESMA stresses the importance of the best execution requirements under both the current and the reviewed MiFID II framework. So, apart from the content of its Public Statement, ESMA says investment firms are required to strictly adhere to best execution requirements and NCAs are expected to supervise their compliance. ESMA also states that the importance of the best execution requirements is also witnessed by the inclusion of a mandate for ESMA to develop a new draft RTS on investment firms’ order execution policies in the MiFID II review amending Directive. Link to Public Statement here MONEY MARKET FUNDS FSB Review Finds Uneven Implementation of Money Market Fund Reforms On 27 February 2024, the Financial Stability Board (FSB) published its ‘Thematic Review on Money Market Fund (MMF) Reforms’ (Thematic Review). The FSB states that the Thematic Review takes stock of the measures adopted or planned by FSB member jurisdictions in response to the 2021 FSB report, Policy Proposals to Enhance MMF Resilience. The review does not assess the effectiveness of those policy measures in addressing risks to financial stability, as the FSB says that this will be the focus of separate follow-up work in 2026. The FSB states that the main MMF vulnerability identified by jurisdictions is the mismatch between the liquidity of fund asset holdings and the redemption terms offered to investors, which makes MMFs susceptible to runs from sudden and disruptive redemptions. To address vulnerabilities, the 2021 FSB report provided a menu of policy options including: imposing on redeeming investors the cost of their redemptions; enhancing the ability to absorb credit losses; addressing regulatory thresholds that may give rise to cliff effects; and reducing liquidity transformation. The Thematic Review finds that progress in implementing the 2021 FSB policy proposals has been uneven across FSB member jurisdictions. Authorities in all jurisdictions reported that they had implemented policies aimed at addressing MMF vulnerabilities prior to the 2021 FSB Report. The FSB says that since then, some jurisdictions have introduced new policy tools or recalibrated existing ones (China, India, Indonesia, Japan, Korea, Switzerland, US), while others are still in the process of developing or finalising their reforms (EU, South Africa, UK). The Thematic Review concludes that, given the vulnerabilities reported in individual jurisdictions, further progress on implementing the FSB policy toolkit would be needed to enhance MMF resilience and limit the need for extraordinary central bank interventions during times of stress. The Thematic Review calls on FSB member jurisdictions that have not yet done so to review their policy frameworks and adopt tools to address identified MMF vulnerabilities, taking into consideration the 2021 FSB policy proposals. Where relevant tools, such as minimum liquidity requirements, are already available, the review recommends that FSB jurisdictions consider whether these need to be re-calibrated to ensure their effective use and to maintain a sufficient level of MMF resilience. Link to Thematic Review here