ESMA's May 2024 Updates: Capital Markets, AI, ESG Funds, and Crypto-assets Spotlight

Capital Markets

ESMA published a position paper with 20 recommendations for strengthening EU capital markets. The recommendations focus on empowering citizens to invest, providing diverse financing options for companies (especially SMEs), and modernising the EU regulatory framework.

Artificial Intelligence (AI) in Investment Services

ESMA guided firms using AI technologies when providing investment services to retail clients. While acknowledging AI's potential benefits, ESMA also highlighted its inherent risks, such as algorithmic biases, opaque decision-making, overreliance on AI, and privacy concerns. Firms are expected to comply with MiFID II requirements when using AI.

Guidelines on ESG Fund Names

ESMA published final guidelines on using ESG or sustainability-related terms in fund names. The guidelines aim to protect investors from unsubstantiated claims and provide asset managers with clear criteria. A minimum threshold of 80% of investments should be aligned with ESG objectives to use such terms in fund names.

Crypto-Asset Service Providers (CASPs)

ESMA released final rules on conflicts of interest for CASPs under the Markets in Crypto Assets Regulation (MiCA). The rules clarify elements related to vertical integration of CASPs and align with draft rules for issuers of asset-referenced tokens.

MiFID II Marketing Requirements

ESMA published a report on the application of MiFID II marketing disclosure rules. While generally finding compliance, ESMA identified areas for improvement, such as the need for clear risk/benefit presentations and references to additional fees in "zero cost" products.

Other Updates

• ESMA reminded issuers about the rules for sharing information during pre-close calls, emphasising the importance of disclosing only non-inside information.

• The Statistics on Securities and Markets (ESSM) Report was released, providing details on the organisation of securities markets in the European Economic Area (EEA).

• ESMA reminded credit rating agencies (CRAs) of their obligation to disclose the reasons for discontinuing a credit rating.

• Consultations were launched on various topics, including MiFIR review, consolidated tape providers, commodity derivatives, and UCITS-eligible assets.

Overall, ESMA's May 2024 updates encompass various subjects aimed at bolstering capital markets, safeguarding investors, and ensuring equitable and transparent practices within the financial sector.