Financial Services Regulatory Update – November 2024 Round Up

Council of the EU adopts Regulation on ESG Rating Activities

On 19 November 2024, the Council of the EU adopted the EU Regulation on the transparency and integrity of ESG rating activities.

The new rules aim to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations of ESG rating providers, and preventing potential conflicts of interests. Under the new rules, ESG rating providers will need to be authorised and supervised by the European Securities and Markets Authority (“ESMA”), and will need to comply with transparency requirements, in particular with regard to sources of information and methodologies used.

The Regulation was published in the Official Journal of the EU on 12 December 2024 (text available here). It will enter into force on 2 January 2025, and applies from 2 July 2026.

FAQs on Irish CSRD Regulations

On 1 November 2024, the Department of Enterprise, Trade and Employment published FAQs (here) on the European Union (Corporate Sustainability Reporting) Regulations 2024 (as amended), which transposed the Corporate Sustainability Reporting Directive (“CSRD”) into Irish law by amending the Companies Act 2014 (with the insertion of a new Part 28) and the Transparency Regulations 2007.

Pursuant to the Irish CSRD Regulations, the sustainability reporting regime will apply on a phased basis to Irish-incorporated companies and to issuers of securities on an EU regulated market, with reporting in respect of the 2024 financial year to begin in 2025.

Concerns have been raised as to whether the Irish CSRD Regulations transposing the CSRD are fully aligned with the scope of the CSRD itself. A number of those concerns remain outstanding. McCann FitzGerald LLP and other professional advisors continue to engage with the relevant government Department and Ministers with a view to ensuring that the shared policy objective of a fully aligned Irish and EU regime is realised.

For more information on Ireland’s transposition of CSRD, see our recent briefing here.

European Commission Guidance on EU Taxonomy

On 8 November 2024, Commission Notice C/2024/6691 (here) on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation was published in the Official Journal of the EU.

With its guidance, the European Commission intends to facilitate stakeholder compliance, in a cost-effective manner, with the requirements of the Taxonomy Regulation, and ensure the usability and comparability of reported information.

On 29 November 2024, the European Commission additionally published a draft Notice (here) containing FAQs that provide technical clarifications on the application of the EU Taxonomy, in particular as regards the technical screening criteria for new activities contained in related delegated acts, the “Do No Significant Harm” criteria, and reporting obligations for activities covered by the Climate Delegated Act and the Environmental Delegated Act.

ESAs publish “Fit for 55” Report

On 19 November 2024, the European Supervisory Authorities (the “ESAs”), together with the European Central Bank (the “ECB”), published a report (here) containing the results of the once-off “Fit-For-55” climate scenario analysis. According to the ESAs, under the scenarios examined, transition risks alone are unlikely to threaten financial stability. However, the results indicate that when transition risks are combined with macroeconomic shocks, they can increase losses for financial institutions and may lead to disruptions. Accordingly, financial institutions should continue to integrate climate risks into their risk management frameworks in a comprehensive and timely manner.

Council of the EU approves IRRD and Solvency II Reforms

On 5 November 2024, the Council of the EU gave its final approval to the Insurance Recovery and Resolution Directive (adopted text here) (the “IRRD”), and the Directive amending the Solvency II Directive as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, and group and cross-border supervision (adopted text here) (the “Solvency II Amending Directive”).

The IRRD will establish an EU-wide recovery and resolution framework for insurance undertakings, similar to that already existing for banks, in order to:

• harmonise recovery and resolution tools and procedures across the EU, while protecting policy holders, beneficiaries, and claimants, and maintaining financial stability;
• promote cooperation between national authorities; and
• enable insurance and reinsurance undertakings to be recovered or wound down without the need for taxpayers to foot the bill.

According to the EU, the changes brought by the Solvency II Amending Directive will free up large amounts of capital, which insurance undertakings have had to keep in reserve, allowing the sector to channel more funds into economic recovery and towards realisation of the objectives of the European Green Deal. Currently, the cost-of-capital rate, which determines reserve levels, is assumed to be equal to 6%, whereas the update will bring the rate down to 4.75%.

The update will also simplify supervision, while empowering supervisors on systemic risks. At the initiative of the European Parliament, supervisors will be required to better cooperate with each other where insurers operate in other Member States.

The update includes new provisions requiring insurance undertakings to better take into account sustainability-related risks, and to report in more detail about such risks, to ensure policyholders can better understand undertakings’ green credentials.

Both texts will shortly be published in the Official Journal of the EU. Following publication and subsequent entry into force, EU Member States and industry will generally have two years to comply with the various reform measures.

Consultation on National Discretions contained in AIFMD II

On 22 November 2024, the Department of Finance launched a consultation (here) on the exercise of national discretions contained in the revised Alternative Investment Fund Managers Directive (“AIFMD II”).

The Department of Finance has confirmed (see here) that the majority of provisions under AIFMD II will be transposed on a fully harmonised basis. AIFMD II does, however, leave certain matters to each Member State’s discretion. The Department of Finance is inviting submissions in relation to the exercise of the following national discretions:

• extending the list of ancillary activities and services that may be provided by an external alternative investment fund manager (“AIFM”);
• prohibiting alternative investment funds (“AIFs”) that originate loans from granting loans to consumers in Ireland;
• permitting the national competent authority to allow the appointment of a depositary established in another Member State, on receipt of a reasoned request from an AIFM and subject to strict conditions; and
• extending the list of ancillary activities and services that may be provided by a UCITS management company.

The Department of Finance’s consultation runs until 17 January 2025.

Findings of CBI ETF Review

The Central Bank of Ireland (the “CBI”) has published a “Dear Chair” letter (here), dated 28 November 2024, outlining the findings of a review of the primary and secondary market trading arrangements of Irish-authorised exchange-traded funds (“ETFs”). Firms are required to review the actions detailed in the letter and, where appropriate, incorporate necessary changes to their frameworks and practices by the end of Q2 2025.

Data Collection Exercise on Costs linked to Investments in AIFs and UCITS

On 14 November 2024, ESMA launched a data collection exercise, together with the national competent authorities, on costs linked to investments in AIFs and UCITS (see here).

Information requested from manufacturers will provide an indication on the different costs charged for the management of the investment funds. Information requested from distributors (i.e. investment firms, independent financial advisors, neo-brokers) will inform on the fees paid directly by investors to distributors.

A report based on data collected will be submitted to the EU institutions in October 2025.

EBA Guidance on Implementation of EU and National Sanctions

On 14 November 2024, the European Banking Authority (the “EBA”)  published two sets of final guidelines (here) that set out common EU standards on the governance arrangements and the policies, procedures and controls financial institutions should have in place to be able to comply with EU and national restrictive measures.

The first set of guidelines is addressed to all institutions within the EBA’s supervisory remit. The second set of guidelines relates specifically to payment service providers (“PSPs”) and crypto-asset service providers (“CASPs”), and specifies what PSPs and CASPs should do to comply with restrictive measures when performing transfers of funds or crypto-assets.

The deadline for national competent authorities to report whether or not they comply with the guidelines will be two months after the publication of the translations into the official EU languages. The amending guidelines will apply from 30 December 2025.

Finalisation of EMIR 3

On 19 November 2024, the Council of the EU formally adopted the Directive and the Regulation that revise the European Market Infrastructure Regulation (“EMIR”) (and related framework) as regards measures to mitigate excessive exposures to third-country central counterparties (“TC-CCPs”) and improve the efficiency of EU clearing markets (reform proposals together known as "EMIR 3").

On 4 December 2024, both the Regulation (here) and Directive (here) were published in the Official Journal of the EU. Most EMIR 3 provisions are expressed to apply from entry into force, which occurs on the twentieth day following publication. However, certain provisions which amend the clearing thresholds are expressed to apply from the entry into force of related RTS. ESMA has expressed an intention (see the update below) to submit certain draft EMIR 3 RTS to the European Commission within six months following the entry into force of EMIR 3.

For more information on EMIR 3, see our earlier briefing here.

ESMA consults on EMIR 3 Active Account Requirement

On 20 November 2024, ESMA launched a consultation (here) on the conditions of the active account requirement (“AAR”) contained in EMIR 3. ESMA is seeking stakeholder input on several key aspects of the AAR, including:

• operational conditions to ensure that the clearing account is effectively active and functional, including stress-testing;
• the representativeness obligation for the most active counterparties; and
• reporting requirements to assess compliance with the AAR.

ESMA’s consultation runs until 27 January 2025. ESMA aims to submit final draft RTS to the European Commission within six months following the entry into force of EMIR 3.

CBI designated as MiCA National Competent Authority

The CBI has been confirmed as the Irish national competent authority with responsibility for the Markets in Crypto Assets Regulation (“MiCA”). The recently-published Irish implementing Regulations (here) outline the administrative penalties and measures for regulated and non-regulated financial service providers. The Irish Regulations also confirm that crypto-asset service providers that provided their services in accordance with the applicable law before 30 December 2024 (the date on which MiCA comes into application) may continue to do so until 30 December 2025 or until they are granted or refused an authorisation pursuant to Article 63 of MiCA, whichever is sooner.

Following its official designation as the Irish competent authority for MiCA, the CBI published a guidance document (here) for CASPs seeking authorisation under MiCA. The guidance relates to the submission of the key facts document (“KFD”) by applicant CASPs.

Firms seeking authorisation must demonstrate that they can meet the applicable regulatory obligations and the CBI’s supervisory expectations, both at the point of authorisation and post-authorisation. The KFD provides the CBI with high-level information in respect of an applicant’s proposed business and operational model, and associated risks, including details in respect of the applicant firm’s background, ownership, number and type of clients, capital projections, governance and staff resourcing arrangements and outsourcing arrangements.

For more information, see our “Ireland as a Location for Crypto Asset Service Providers 2024” briefing here.

Delegated Acts under MiCA

On 13 November 2024, Implementing Regulation (EU) 2024/2861 (here) was published in the Official Journal of the EU. The Implementing Regulation lays down ITS regarding the technical means for the appropriate public disclosure of inside information, and for delaying the public disclosure of that information, under MiCA. The Implementing Regulation entered into force on 3 December 2024.

In addition, on 28 November 2024, Implementing Regulation (EU) 2024/2902 (here) was published in the Official Journal. The Implementing Regulation lays down ITS for the application of the MiCA with regard to reporting related to asset-referenced tokens (“ARTs”) and to e-money tokens (“EMTs”) denominated in a currency that is not an official currency of an EU Member State. That Implementing Regulation applies from 1 January 2025.

The European Commission has additionally adopted the following delegated acts containing RTS supplementing MiCA.

• Delegated Regulation (here) supplementing MiCA with regard to RTS specifying the procedure for the approval of a crypto-asset white paper;
• Delegated Regulation (here) supplementing MiCA with regard to RTS specifying the methodology to estimate the number and value of transactions associated to uses of ARTs and of EMTs denominated in a currency that is not an official currency of a member state as a means of exchange;
• Delegated Regulation (here) supplementing MiCA with regard to RTS specifying the information to be included by certain financial entities in the notification of their intention to provide crypto-asset services;
• Delegated Regulation (here) supplementing MiCA with regard to RTS specifying the information to be included in an application for authorisation as a CASP;
• Delegated Regulation (here) supplementing MiCA with regard to RTS on continuity and regularity in the performance of crypto-asset services; and
• Delegated Regulation (here) supplementing MiCA with regard to RTS specifying the conditions for the establishment and functioning of consultative supervisory colleges.

EU Listing Act published in Official Journal

On 14 November 2024, the legislative measures that together form the “EU Listing Act” were published in the Official Journal of the EU:

• Regulation (EU) 2024/2809 (here) amending the Prospectus Regulation, Market Abuse Regulation (“MAR”) and the Markets in Financial Instruments Regulation (“MiFIR”);
• Directive (EU) 2024/2810 (here) on multiple-vote share structures in companies that seek the admission to trading of their shares on an SME growth market; and
• Directive (EU) 2024/2811 (here) amending the Markets in Financial Instruments Directive (“MiFID II”) and repealing the Listing Directive.

The aim of the legislative package is to make EU public capital markets more attractive for EU companies, and to facilitate the listing of companies of all sizes, including SMEs, on European stock exchanges.

The various components of the Listing Act entered into force on 4 December 2024. EU Member States have 18 months to transpose the Directive amending MiFID II into national legislation, and two years to transpose the Directive on multiple-vote shares.  The Regulation applies from entry into force, subject to certain provisions that are expressed to apply from 15 months after the date of entry into force.

ESMA recommends Move to T+1 by October 2027

On 18 November 2024, ESMA published its final report (here) on the assessment of the shortening of the settlement cycle in the EU. According to ESMA, the proposed migration to T+1 should occur simultaneously across all relevant instruments and should be achieved by Q4 2027. ESMA recommends 11 October 2027 as the optimal date for the EU’s transition to T+1.

ESMA Advice on CSDR Penalty Mechanism

On 19 November 2024, ESMA published its final report (here) containing technical advice on the penalty mechanism under the Central Securities Depositories Regulation (“CSDR”). The advice aims at incentivising actors in the settlement chain to improve settlement efficiency, particularly in view of the anticipated move to T+1 in the EU, mentioned above.

Selected Consultations, Discussion Papers, Speeches and Reports Published

EIOPA – Consultation on a Blueprint for an Awareness Tool for Natural Catastrophe Risks and Prevention Measures (here) (consultation runs until 28 February 2025)

EIOPA – Opinion on the Scope of DORA in the light of the Solvency II Review (here)

EIOPA – Report on the Prudential Treatment of Sustainability Risks (here)

International Association of Insurance Supervisors (“IAIS”) – Draft Application Paper on the Supervision of Artificial Intelligence (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review (incorporating link to updated ISDA OTC Derivatives Compliance Calendar): November 2024 (here)

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McCann FitzGerald LLP regularly publishes briefings on topics relevant to financial services, among other topics. You may be interested in the following briefings:

• Anti–Money Laundering under the Gambling Regulation Act 2024 (here)
• Company Law: Changes are Enacted (here)
• CRD VI: Third Country Banks – Are you Ready for the New Branch Requirement? (here)
• DE&I in Financial Services Regulation: Key Developments for 2024 (here)
• EU Sanctions Update: EU Court Upholds Legal Services Ban on Russian Entities (here)
• Final Countdown: Complying with the Digital Operational Resilience Act (here)
• Guide to European Long-Term Investment Funds (here)
• Legal View on the New Irish Gambling Regulations (here)
• Marketing MiFID Investment Products (here)
• New Restrictions on the Use of NDAs in Employment Equality Claims (here)
• Restructuring Update: Third-Party Releases after Purdue Pharma – Solutions in Irish Law (here)