On 26 March 2021, the European Securities and Markets Authority (ESMA) published its final advice to the European Commission on data reporting service providers (DRSP). The advice focuses on the fees, fines and penalties applicable to DRSPs subject to EU supervision as well as the criteria determining whether certain DRSPs may be exempted from ESMA supervision (derogation criteria).
Steven Maijoor, ESMA Chair, said:
“The delivery of this advice is a major step in the preparation for the new supervisory responsibilities of ESMA.
ESMA has taken the feedback from the consultation into account and has refined the derogation criteria to assure a balanced allocation of supervisory responsibilities regarding DRSPs between NCAs and ESMA.
It is of utmost importance for DRSPs to have certainty on the applicable regulatory framework prior to the transfer of supervisory responsibilities to ESMA. I would, therefore, welcome the swift adoption by the European Commission of the relevant delegated acts on the basis of this advice.”
In terms of the criteria for DRSP the ESMA final report is comprised of nine sections and two annexes:
- Section 1 includes the background of the final report, as per the agreed text of MiFIR amended by the ESA Review.
- Section 2 specifies the content of the technical advice on DRSP derogation criteria requested by the Commission.
- Section 3 sets out the proposed method to determine if the Approved Publications Arrangement (APA) or Authorised Reporting Mechanism (ARM) services are provided to investment firms authorised in one Member State. It is envisaged that, an APA or an ARM, in order to be eligible for a derogation on the basis of this criterion, should provide services to investment firms authorised in less than 4 Member States and at least 70% of the firms should be authorised in the same Member State where the APA or the ARM is established, unless the number of firms in other Member States is lower than 3.
- Section 4 outlines the proposed calculation method with regard to the number of trade reports or transactions. In order to be eligible for a derogation, an APA or an ARM should report less than 0.5% of overall data made public or reported across the EU by all APAs or ARMs.
- Section 5 describes the method to determine whether the ARM or APA is part of a group. In order to qualify for a derogation under this criterion, an ARM or APA should not be part of a group of financial market participants operating cross-border.
- Section 6 presents other qualitative and quantitative elements to determine if ARMs should have a derogation on account of their limited relevance for the internal market. In particular, an ARM could be considered eligible for derogation if out of transactions reported by this ARM less than 30% are subject to exchange with another Member State competent authority (NCA).
- Section 7 sets out the criteria that determine upfront which data reporting services providers (already authorised in the EU) are derogated from ESMA supervision.
- Section 8 clarifies whether the elements to determine if an ARM or APA should have a derogation are cumulative or not and proposes a two-step process to assess the above-mentioned criteria.
- Section 9 details the considerations on the frequency of the assessment on the criteria and the frequency of the transfer of supervisory responsibilities from an NCA to ESMA or from ESMA to an NCA. It is envisaged that the criteria would be reassessed on a yearly basis and the supervision would be transferred only after the second assessment in which the same respective thresholds are reached, unless there is a significant change in which case the supervision could be transferred after the first reassessment.
In its final report on DSRP fees, ESMA proposes both application and authorisation fees, as well as an annual supervisory fee. For that, ESMA draws on the existing fee frameworks for trade repositories and securitisation repositories. It also covers fines and penalties for DRSPs.
After submitting its technical advice to the Commission, ESMA will continue working with NCAs on a smooth transfer of supervisory responsibilities for the relevant DRSPs as of 1 January 2022.