FIG Top 5 At 5 - 09/03/2023

• Jurisdiction: European Union
• Law Firm: Matheson
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Directors and Officers, Securities, Diversity, Equity & Inclusion
• Author: &nbsp Matheson
• Published date: 27 March 2023

1. Central Bank of Ireland: Securities Markets Risk Outlook Report for 2023

On 2 March 2023, the Central Bank of Ireland ("Central Bank") published its Securities Markets Risk Outlook Report for 2023 ("Report").

The Report outlines the key risks and areas of focus for markets supervision and sets out the Central Bank's expectations of what regulated financial service providers ("RFSPs") and market participants should do to effectively identify, mitigate and manage those risks.

Patricia Dunne, Director of Securities and Markets Supervision at the Central Bank, emphasised that "it is essential that regulated firms and market participants recognise and respond to (.) new market conditions and adapt their risk management and compliance frameworks in order to protect investors and promote orderly markets".

At a high level, the Central Bank's expectations include:

• External Risk Environment: Market participants are expected to be cognisant of rapidly changing market dynamics and ensure appropriate stress testing is in place to ensure the smooth functioning of their operations.
• Sustainable Investing: To safeguard the flow of investment capital toward sustainable activities, market participants must ensure that investment products classified as green or sustainable meet such criteria.
• Market Integrity: To protect the integrity of and trust in Irish securities markets, market participants must have robust frameworks and control environments to comply with the provisions of the Market Abuse Regulations.
• Market Conduct Risk Management: Market participants must have processes in place to identify, mitigate and manage the conduct risks inherent in their business.
• Delegation and Outsourcing: The utilisation of delegated and/or outsourced services must be accompanied by appropriate levels of governance and oversight.
• Cybersecurity: To meet heightened cybersecurity risks, market participants must ensure they have adequate governance structures and tools in place to deal with those risks.
• Data Quality: As data becomes increasingly important, market participants should ensure that sufficient attention and resources are deployed to data quality initiatives.
• Digital Innovation: Market participants must take steps to ensure that their risk frameworks incorporate risks arising from the implementation of new technologies.

For a more detailed consideration of the Report, please see our recent Insight available here

2. Central Bank of Ireland- Dear CEO letter on MiFID Structured Retail Product Review

On 3 March 2023, the Central Bank of Ireland ("Central Bank") published a Dear CEO letter containing supervisory guidance on the MiFID Structured Retail Product Review (the "2023 Letter"). The 2023 letter is a follow-up to the Central Bank's 'Dear CEO' letter on Structured Retail Products ("SRPs") ("2022 Letter") published in April 2022 following a series of targeted reviews of SRPs. The 2023 Letter is relevant to firms who currently (or plan to) manufacture or distribute SRPs and/or produce marketing material for SRPs.

The 2023 Letter notes that the Central Bank is publishing this further supervisory guidance to supplement the 2022 Letter and to "provide clarification to firms on complying with the relevant MiFID II investor protection requirements and meeting the expectations set out in the SRP Letter". These clarifications and expectations are based on the Central Bank's engagement with firms and its observation of marketing practices since the issuance of the 2022 Letter.

The 2023 Letter takes a Q&A format which specifically addresses how firms should interpret the expectations set out in two aspects of the 2022 Letter including (1) Decrement Index and (2) Presentation of back-testing.

Decrement Index

Question: How should firms interpret the following expectations set out in the 2022 Letter in relation to the disclosure of the use of a Decrement...