With a role on everything from ensuring
supervisory convergence across the EU to the oversight of fund
managers, Esma is central to the functioning and shaping of
European markets. That makes Steven Maijoor's job an especially
busy – and important one. Here he sheds some
much-needed light on regulatory technical standards, investment
recommendation definitions and how the regulator plans to
streamline those incredibly tedious reporting requirements.
What is the damage a British exit from the EU might do to
the plan for a capital markets' union?
On June 23 2016 the UK electorate voted to leave the EU. It
is our understanding that an agreement will need to be found
between the UK and the Council of the European Union with the
consent of the European Parliament.
Much financial regulation currently applicable in the UK
derives from EU legislation. The EU treaties state that all EU
legislation and corresponding governance mechanisms remain in
place until an agreement is found or until two years after the
notification by the UK. Esma will continue to work closely with
the UK Financial Conduct Authority to enhance investor
protection and ensure financial stability and orderly
functioning financial markets.
Post-Brexit uncertainty aside, following the Mifid II
delay, there has been some speculation in the market that some
of the more onerous requirements will be revised. Is that being
Changing any of the requirements at Mifid II level 1
– by which I mean the framework Directive and
Regulation – is, of course, entirely in the hands of
the co-legislators but as far as we are aware, the changes at
level 1 which have been agreed in the context of the
discussions of delaying the date when Mifid II comes into force
from January 2017 to January 2018, have been limited.
The Commission has asked us to make some changes to three of
our Mifid II technical standards – the level 2 rules
– which we originally submitted to the Commission in
September 2015; the standards covering non-equity transparency,
position limits for commodity derivatives and the ancillary
activity exemption which is about how to quantify whether a
non-financial firm is doing so much activity in the area of
commodity derivatives it should in fact be authorised as a
The intention behind some of those requested amendments, for
instance those concerning bond market transparency, is to apply
a more cautious approach in the early days of Mifid II going
live. We recently published our Opinions in respect of those
amendments and so now we are hoping for a swift adoption of all
Mifid II implementing measures by the co-legislators. I do not
consider other revisions of requirements likely at this time
though the European Parliament and Council still have an
objection period on the Commission's delegated acts and Esma's
What is your position on the claims that the large amount
of post-crisis regulation is having a negative impact on
growth, as well as drying up the secondary bond market?
Although it's nearly 10 years since the financial crisis,
the shock waves from it are still affecting us in a number of
ways. We are still in a period of low, even negative interest
rates, for example, and a number of countries' economies remain
fragile so it is difficult to attribute a lack of liquidity to
one cause such as post-crisis regulation.
More specifically when we talk about liquidity in secondary
bond markets, liquidity varies depending on types of bonds.
Corporate bonds are a particularly illiquid segment of that
market as, speaking in very broad terms, there is a brief
period of trading around the time of issue followed by the
occasional spike of activity when the market is galvanised into
action by an event or announcement.
Sovereign bonds on the other hand, tend to be more liquid.
It's true that some post-crisis regulation has made it more
costly to conduct market-making activity, for example by
increasing the capital requirements for this type of activity
for banks. But a great deal of the regulation also aims at
improving liquidity and ultimately the economy.
Bond markets play an important role in EU capital markets,
helping to finance the economy. If you look at data over the
last five years especially, you can see that the volume of debt
securities issued by non-financial firms increased in the
eurozone which helped compensate, to some extent, for the near
stagnation of bank funding. This development is partly the
result of unique circumstances related to challenges in the
banking sector and the very low interest rate environment.
However, it is important that this bigger role played currently
by bond markets becomes a permanent feature and is supported
with policy measures where needed.
This is recognised in the Commission's Capital Markets Union
initiative which Esma fully supports. We should also recognise
that Mifid II also foresees a more important role for bond
markets. I believe that protecting the liquidity of the bond
market is of paramount importance and transparency requirements
should be calibrated carefully. Transparency applied
indiscriminately to illiquid instruments can be damaging,
resulting in difficulties in executing trades and the further
thinning of already thin markets. However, I am not aware of
any liquid market which is not also reasonably transparent.
Some in the market have raised concerns over compliance
with the Market Abuse Regulation (MAR) while they wait for
Mifid II's technical standards, causing a 'wait and see'
approach to compliance. What would you suggest institutions do
in the meantime?
The co-legislators who recently agreed to postpone the date
of application of Mifid II/R have not also considered
postponing the application of MAR, except for the specific case
of the provision of reference data on financial instruments to
Esma and the subsequent publication. I understand that
stakeholders are concerned about the fact that the Mifid and
MAR RTS are not yet finalised, making it more difficult to
prepare. In that context I should mention that Esma has
recently issued a communication to the market clarifying the
reporting of reference data under MAR.
Also on instrument reference data and related data
standards, the question seems to imply that pending the Mifid
TS being applicable, the market does not have the information
available. In practice, this is not true. The absence of the
instruments list published by Esma does not mean that the
information about the financial instruments in scope of MAR
cannot be obtained; it is just that information is fragmented
Furthermore, it should be noted that on July 3 2016, MAR
will start applying however, until MiFD II/R applies in January
2018, instruments traded on OTFs as well as emission allowances
will not be covered in the scope of the financial instruments
subject to MAR.
There has also been some confusion over MAR's requirements
on investment recommendations. What does Esma consider an
The definition of investment recommendation is laid down in
Level 1 of MAR which means Esma cannot interpret or redefine
it. Neither can we limit the scope through our standards and
other tools such as guidelines and Q&As. Market
participants should look carefully at the definition of
investment recommendation laid down in Level 1 and at the
criteria included in light of the specificities of their
activities in order to determine whether or not a communication
may represent an investment recommendation.
Esma is currently contemplating issuing Q&As to provide
more clarity on the MAR investment recommendation requirements.
However, the Q&As will not be ready before July 3 2016, the
date of entry into application of MAR.
You have recently said that more onerous data obligations
are here to stay, but that Esma would aim to improve and
streamline them. How will it go about this?
Reporting is often seen as a burden by firms; however,
regulators across the EU have put significant efforts into
harmonising reporting regimes to the extent it is feasible
under the individual sectoral legislation.
The development of any reporting regime is primarily
influenced and driven by the purpose of that reporting and
intended subsequent data use by regulators. Different scopes,
purposes and timings of the introduction of various regimes
determine the extent of their compatibility and predefine the
level of harmonisation that is feasible to achieve during the
While the alignment of different regimes is the desired
outcome, when developing regulatory and implementing technical
standards, certain fundamental differences eg mechanics of
reporting, granularity of data and reporting parties should be
accounted for when developing the relevant technical
Therefore, while there might be common fields required under
different regimes, the overall purpose and thus structure of
reports will differ due to the inherent differences of the
regimes themselves. This is a significant challenge for
alignment, though not impossible to overcome. In practice, Esma
addresses such challenges in two complementing ways:
- consistency of definition and alignment of representation
of data fields common across the regimes; and
- standardisation of the messages reporting framework
across various regulations.
For the past three years, Esma has focused on achieving
these two goals to the extent that it is possible.
Amid the talk of regulatory convergence and harmonisation,
one area deemed particularly difficult is insolvency law, which
differs wildly across member states. How would you say a lack
of harmonisation affects European markets? What areas of
insolvency law do you think would be more easily harmonised
SMEs are the lifeblood of the European economy and
increasing the supply of market capital to SMEs is one of the
core objectives of CMU. When it comes to investing,
particularly on a cross border basis, the labyrinth of national
insolvency laws can be very problematic, especially when we
talk about investing in SMEs. Investors need predictability as
regards the risks they are taking and the potential returns on
any investment. They are more likely to shy away from the
opaque and the unknown.
Small companies seeking to access capital markets often have
a lower profile than listed blue chips and therefore the risk
premium attaching to any investment in such companies can be
more difficult to price, and can cause real difficulties when
While we recognise that insolvency law is intrinsically
linked with company law, and difficult to harmonise, any
increase in clarity and certainty would be welcomed by
investors and could facilitate a greater flow of capital to
these companies. The Commission are currently consulting on the
issue of insolvency and we very much look forward to seeking
the proposal that will follow the analysis of the consultation