Greg Kilminster
Head of Product - Content
ESMA issues MiFID II/MiFIR Annual Review Report
The European Securities and Markets Authority (ESMA) has published the MiFID II/MiFIR Annual Review Report under Commission Delegated Regulation (EU) 2017/583 (RTS 2).
In the report, ESMA proposes to the European Commission (EC) to move to stage three of the phase-in for the transparency requirements in the bond market in order to improve the limited pre- and post-trade transparency currently available to market participants.
Proposal
The proposal includes moving to stage three for the average daily number of trades threshold used for the quarterly liquidity assessment of bonds, as well as moving to stage three for the pre-trade size specific to the instrument threshold for bonds.
However, ESMA does not recommend moving to stage two for the pre-trade size specific to the instrument threshold for other non-equity instruments. This decision is based on the insufficient completeness and quality of the data available for the annual transparency calculations in 2020 for certain instrument classes.
Next steps
The EC must endorse the amended regulatory technical standards to implement the move to stage three. Once endorsed, they will be subject to a non-objection procedure by the European Parliament and the Council.
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MAS speech on dedication to tackling “mega forces” with the asset management industry
Gillian Tan, Assistant Managing Director and Chief Sustainability Officer of the Monetary Authority of Singapore (MAS), delivered the opening remarks at the Alternative Investment Management Association Singapore Annual Forum 2024. During her speech, she talked about MAS’s efforts to shape the industry’s future, with a particular emphasis on climate change, digital assets, and the integration of AI.
Local and global efforts to facilitate climate transition
Tan outlined MAS’s diverse efforts to advance sustainable and transition financing on a global and regional basis. A significant initiative in this regard is the Singapore-Asia Taxonomy for Sustainable Finance, which provides guidelines for transition activities in eight key sectors.
MAS is also working alongside industry stakeholders and government agencies to explore the use of taxonomy, including the development of debt instruments aligned with the taxonomy in both public and private markets, as well as the establishment of green and transition-focused funds.
In addition, MAS has established the Singapore Sustainable Finance Association (SSFA), an industry-led platform that seeks to promote cooperation between the financial and real economy sectors. By providing clarity in standards, promoting best practices, driving innovation, and enhancing the talent pool, the SSFA seeks to facilitate collaboration between asset managers and stakeholders in order to increase financing for energy transition.
Pilot initiatives on asset tokenisation
Tan reported that MAS and the asset management industry are collaborating on Project Guardian to pilot asset tokenisation initiatives using Singaporean fund structures.
MAS has also launched the Global Layer One initiative, with the goal of creating a digital infrastructure that spans across various distributed ledger technology networks. This infrastructure will enable the trading of tokenised assets in global liquidity pools.
Tan also discussed industry-led initiatives with asset managers, such as Schroders, Franklin Templeton, and UBS Asset Management. These firms have launched pilots to explore the issuance of tokenised investment vehicles through a Variable Capital Company (VCC) structure on digital asset networks. Furthermore, Apollo Global Management is currently exploring the potential of tokenisation and smart contracts in facilitating the seamless investment and management of discretionary portfolios, particularly those involving alternative assets.
Exploring the potential of Gen AI
She highlighted the increasing influence of Gen AI in asset management, emphasising its potential to enhance operational efficiency and mitigate risks. She provided examples of Gen AI engines being utilised by fund managers for asset allocation and securities selection and predicted that this trend would continue to expand in the future.
She also emphasised the importance of asset managers understanding the potential risks associated with Gen AI, particularly in complex investment and compliance tasks.
In line with the regulator’s approach for other initiatives, she announced MAS is collaborating with Industry to develop a Gen AI risk framework for the financial sector. Additionally, Tan revealed that MAS and the Institute of Banking and Finance Singapore (IBF) are conducting a study to identify key Gen AI use cases in financial services and to explore the impact of Gen AI adoption and scaling on jobs and the required skill sets. The study aims to uncover opportunities for upskilling and reskilling within the financial sector workforce, enabling them to harness the potential of Gen AI while facilitating career transitions and the development of new career paths.
Overall, Tan’s speech was an opportunity to emphasise MAS’s dedication to innovation in tackling current issues, which she labels as “mega forces.” Given the challenges ahead, it also underscores the Singapore regulator’s nurturing of a “vibrant” asset management ecosystem.
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ASIC chair addresses directors' compliance challenges
ASIC Chair Joe Longo delivered a keynote speech at the Australian Institute of Company Directors (AICD) Australian Governance Summit. During his speech, he addressed the challenges directors face in an ever-changing and complex business environment. Longo acknowledged the increasing pressure on the traditional division of governance responsibilities between boards and senior executive management. He also highlighted the impact of regulatory changes, mandatory climate disclosure, cyber security, and AI.
Throughout his address, he presented thought-provoking questions that directors should ask themselves, starting with: “Is it impossible for directors to comply with their obligations?”
He continued with the following questions to help directors comply with their obligations under the Corporations Act:
Are you acting honestly? Are you prioritising the company’s interests?
According to Longo, acting with honesty and integrity involves avoiding the improper use of position or information and disclosing relevant interests.
Do you have a continuous curiosity to understand all aspects of the company’s core business and the risks associated with it?
Longo also emphasised the importance of understanding all aspects of the company’s core business and the risks associated with it. He viewed this as a genuine effort to comprehend how the company generates revenue, identify key drivers of profitability, and understand the customer base and data sources.
Once directors have established this understanding and are acting with honesty and integrity, Longo encouraged them to engage in meaningful discussions with themselves and their fellow directors about potential risks and pitfalls.
Are you challenging management to ensure your understanding is well-founded, and getting trusted professional advice?
According to Longo, this question highlights the importance of reasonable reliance on the advice of senior management, such as the general counsel or CFO. However, he noted that this reliance may vary depending on factors like the size and resources of the entity. Smaller companies, for instance, may face greater challenges in obtaining the necessary expertise and advice for their board.
Longo concluded by acknowledging the difficulty of being a director but sees curiosity as a way to make judgment clearer and decisions less complicated.
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