MiFID II Compliance Supervision

The European Securities and Markets Authority (ESMA), the supervisory authority over EU’s financial markets, has recently released a follow-up report on the compliance function under the Markets in Financial Instruments Directive I (MiFID I). The report, an optimistic update that highlights improvements in the practices of National Competent Authorities (NCAs), shows that the NCAs have significantly strengthened their supervisory frameworks since the 2017 peer review findings and recommendations. The NCAs – including CySEC (CY), HCMC (EL), CBI (IS), AFM (NL) and ATVP (SI) – have taken substantial steps towards enhancing their supervisory approach, conducting investigations, thematic reviews, and adopting enforcement tools to discourage non-compliant behaviors. The report particularly recognizes the progress made by CySEC and CBI and encourages them to continue their efforts. Importantly, the report underscores the need for ongoing monitoring and supervisory actions to ensure the effectiveness of the guidelines and the supervisory practices implemented.

MiFID II Compliance Supervision: EU Financial Sector

The European Securities and Markets Authority's (ESMA) recent follow-up report is a noteworthy shift in the EU's financial sector, specifically focusing on strengthening supervision and regulatory compliance under the Markets in Financial Instruments Directives (MiFID I & II). The report is particularly relevant to investment firms, credit institutions, and stock exchange market operators, who may need to reconsider their compliance function in light of the newfound emphasis on regulatory adherence.

Increased regulatory scrutiny in jurisdictions such as Cyprus (CySEC), Greece (HCMC), Iceland (CBI), the Netherlands (AFM), and Slovenia (ATVP) is aimed at promoting a more robust, transparent, and fair financial market. ESMA's report suggests that the supervisory enhancements by these National Competent Authorities (NCAs) can serve as a benchmark for other jurisdictions. Consequently, this could foster a culture of continuous improvement and regulatory consistency across the EU, potentially reducing regulatory discrepancies among member states and encouraging a unified financial market.

However, such enhanced supervision and strengthened compliance frameworks may also pose challenges to financial institutions. These include higher compliance costs, potential penalties for non-compliant behavior, and the need for extensive internal changes. Companies must act swiftly and decisively to mitigate these risks. Effective mitigation efforts may involve enhancing their compliance functions to align with ESMA guidelines, conducting regular internal reviews, developing comprehensive risk management frameworks, and providing regular staff training on MiFID I & II.

Notably, ESMA's emphasis on continuous monitoring and supervisory actions contributes to the overall stability and integrity of the financial market. It signals a shift towards stricter compliance under MiFID II, requiring financial institutions to prepare for ongoing adjustments in the face of harmonized EU financial regulation.

In conclusion, the ESMA's follow-up report underlines the crucial role of stringent supervision and robust compliance functions in fostering a secure and transparent EU financial market. Institutions must therefore prioritize compliance with MiFID I & II, a pivotal step in promoting market stability and contributing to the health of the EU's financial sector.

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National regulators strengthen their supervision of the compliance function

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