The European Securities and Markets Authority (ESMA) released its third annual report on supervisory measures and penalties under EMIR.
Some of the aspects highlighted are:
- an increase in the use of EMIR data for supervisory purposes;
- greater clarity on which counterparties are subject to the clearing obligation thanks to the expanded clearing threshold notification mechanism introduced under EMIR Refit;
- some challenges in looking at group activities;
- a need for more supervisory measures regarding third country entities with a link to the EU; and
- the benefits of exchanges among NCAs, facilitated by ESMA with initiatives such as workshops to discuss supervisory cases.
In addition, the report also includes reference to enforcement cases, which for the period covered, resulted in the imposition of sanctions in France, Italy, Liechtenstein and Luxembourg.
Data use
The main two sources of information used by NCAs are: data from trade repositories, which is used on average for the supervision of clearing, reporting and risk mitigation techniques’ requirements by 73% of the countries contributing to the report; and data directly submitted by market participants to the NCA, which is used on average for the supervision of the clearing, reporting and risk mitigation techniques’ requirements by 63% of the EEA countries contributing to this report.
These figures represent a significant increase from the 19% of countries who responded they checked information submitted to NCAs by market participants in the previous report. In addition, on average 51% of the NCAs also reported using other types of sources for supervisory purposes. This may include publicly available data such as financial statements, information published on entities’ websites and any other sources of public information such as public registers.
A more granular analysis of the uses of the data gathered from the reporting to trade repositories indicates that NCAs perform multiple checks based on this information and that some are common in most of the EEA countries.
Penalties and sanctions
During the period in scope for this report (between January 2019 and December 2020):
- France, Italy, Liechtenstein and Luxembourg issued penalties for breaches related to the reporting obligation and France also issued a penalty related to the risk mitigation techniques. In total, 5 penalties were imposed during the period covered in this report.
- In 2019-2020 Italian securities markets regulator CONSOB issued three administrative fines in relation to breaches on the reporting obligation by three counterparties. Formally, two out of three of these fines have been issued in January 2021 but the supervisory measures that led to the resolution to sanction these entities were taken in 2020. The sanctions amounted € 40,000, € 30,000 and € 35,000 respectively.
- In Liechtenstein a financial institution carrying out forward exchange transactions, considered OTC derivative contracts under EMIR, was found in breach of EMIR reporting obligations. In the course of a supervisory audit, it became apparent that the counterparty did not comply with the reporting requirements from December 2018 until September 2019. In fact, the counterparty had signed an outsourcing agreement with another bank and understood its reporting had been delegated to the external service provider. However, the outsourcing agreement did not specify the delegation of the reporting obligation to a registered TR and therefore, the counterparty did not report 30 derivative contracts. After the audit, the financial counterparty notified its omission to the FMA. Considering the absence of an intention motivating the breach, the fine imposed amounted to CHF 22,500 plus CHF 1,000 in costs (in total around € 21,500). The counterparty did not appeal and paid the penalty.
- In Luxembourg, further to an investigation initiated in 2018 as part of a data issue identified during the ESMA Data Quality Review, the CSSF imposed an administrative fine to an investment fund manager amounting to € 20,000. The breaches identified related to data quality issues of early terminated trades not reported as terminated to the TR. The investment fund manager later confirmed the issue had been addressed, however, when the CSSF revisited the file in January 2019, they realised the issue had never been fixed. It was decided to impose an administrative fine and the case is now closed.
- In 2020 France issued a fine of € 500,000 to a credit institution for several breaches identified because the credit institution failed to report all its activity in derivative contracts, had reported wrong data and had neither reported the relevant modifications as well as reporting transactions after the regulatory deadline to report. The credit institution did not appeal the decision and paid the penalty. The same credit institution was also fined for breaching its obligation to timely confirm OTC derivative transactions. In addition, the entity did not have into place the obligation to have procedures to measure and oversee the prompt confirmation of the terms of uncleared OTC derivative contracts.
- No criminal sanctions have been reported to ESMA for breaches of EMIR requirements. Denmark, Ireland, Norway, Spain, and Portugal have the capacity to impose criminal sanctions for the case of an infringement of EMIR provisions.
Based on the information received from NCAs, the different countries are classified in groups according to the methodology that they use to quantify administrative fines with respect to the clearing mandate, the reporting requirements and the risk mitigation techniques.
