Sustainability, Market Abuse And Crypto-assets: Key Themes From Central Bank Securities Markets Risk Outlook Report

• Published date: 09 March 2023
• Subject Matter: Finance and Banking, Technology, Financial Services, Security, Fin Tech
• Law Firm: Arthur Cox
• Author: Ms Maedhbh Clancy, Sarah O'Sullivan and Robert Cain

The Central Bank published its Securities Markets Risk Outlook Report 2023 yesterday, summarising its expectations of what regulated firms and market participants should do to effectively identify, mitigate and manage risks in the context of their particular business activities this year.

Overall, the Central Bank expects to see a well-governed, trusted and resilient securities market, comprising well-governed firms, with high levels of protection for investors and market participants, and transparency on product features and pricing.

Key takeaways from the Report are as follows:

Sustainable Investment

The Central Bank is focused on disclosure and labelling. It expects regulated firms to comply with their regulatory obligations on disclosing sustainability-related information in respect of their products, and have robust policies and procedures in place to ensure that products marketed as 'green', 'ESG' or 'sustainable' are accurately described as such.

It emphasised that "[investors] have high expectations of asset management firms and funds regarding the veracity of their sustainable credentials. It is imperative that standards are high so that the sector can support the transition to a more sustainable economy..." This issue will remain a priority for the Central Bank over the next few years.

Market Integrity

• Market abuse continues to be a key focus area (as signposted in the Central Bank's list of priorities for 2023).
• The Central Bank is still finding deficiencies in firms' market abuse-related surveillance frameworks and governance structures (highlighted in its July 2021 Dear CEO letter) and will continue to check firms' and trading venues' compliance with its requirement to have trade surveillance systems in place that align with their respective business models.
• It also expects to see firms' market surveillance frameworks calibrated to deal with large volumes of order cancellations to mitigate the risks of market abuse inherent in those cancellations.
• Regarding suspicious transaction order reports (STORs), it remains concerned that the volume of STORs isn't matching increased trading volumes (particularly in light of increases in algorithmic trading), and sees quality issues with the STORs that are being made.
• The Central Bank reiterated that issuers must have strong frameworks and controls in place to ensure full compliance with the MAR requirements regarding insider lists and the management of inside information - this has been a consistent...