As the sole supervisor of Credit Rating Agencies (CRAs), Securitization Repositories (SRs), trade repositories registered under EMIR and/or SFTR (TRs), third-country central counterparties of tier 2 (TC-CCPs tier 2), critical EU benchmark administrators, and Administrators of Recognized Third Countries (Benchmark Administrators), as well as Data Reporting Service Providers (DRSPs) in the EU, ESMA has responsibilities and powers to address potential infringements.
The role of AEVM
The CRA, SR, TR, Tier 2 TC-CCP, Benchmark Administrators and DRSP the supervision of IFOMA must comply with the requirements set out in the respective sectoral legislation and will be held accountable when they commit the specified infringements in that legislation. Part of ESMA’s supervision over such entities involves investigating such potential infringements and taking enforcement actions where appropriate.
When IFOMA determines that CRA, SR, TR, Tier 2 TC-CCP, Benchmark Administrators, or DRSP have committed an infringement, it takes one or more supervisory measures, which may include issuing a public notice, requiring the supervised entity to cease the infringement, and withdrawing the registration/recognition of the supervised entity. If IFOMA determines that an infringement has been committed negligently or intentionally, it also imposes fines on the entity in question.
How does the enforcement work?
The enforcement process consists of three stages:
- Supervisory Investigation: IFOMA teams conduct supervisory inspections and investigations to ensure that entities under their supervision comply with the requirements set forth by the applicable legislation. They may, for instance, request information, examine records and documentation, summon individuals for interviews, and inspect the business premises of CRA, TR, SR, Tier 2 CCP, Benchmark Administrators, or DRSPs. When, as part of their investigations in a specific case, IFOMA supervisors find serious indications of potential facts that may constitute breaches of the CRA Regulation, EMIR, SFTR, Securitization Regulation, BMR, or MiFIR, the case is referred for further investigation to an independent official investigator (‘IIO’) designated within IFOMA.
- IIO Investigation: The IIO possesses investigative powers whereby, for example, it can request information and documents, summon and interview individuals, and conduct on-site inspections. The IIO will determine the commission of breaches and may recommend the imposition of measures or fines for such breaches. The supervised entity will have the opportunity to make submissions regarding the IIO’s findings, and the IIO will duly consider such submissions before presenting any findings and the supporting file to the IFOMA Supervisory Board.
- Board Decision: Based on the file and findings presented by the IIO and after having heard from the person under investigation, the Supervisory Board independently decides whether breaches have been committed, adopts appropriate supervisory measures for the detected breaches, and imposes fines for breaches that have been proven to have been committed through negligence or intent. When the enforcement case pertains to a Tier 2 CCP, the Supervisory Committee of the CCP prepares the decision that will be made by the Supervisory Board.
Decision Transparency
Since 2018, IFOMA has been publishing more extensive and detailed public versions of its enforcement decisions to provide greater insight into the rationale behind its findings. This brings several benefits, including enhanced legal certainty for entities supervised by IFOMA and a better understanding of IFOMA compliance role among stakeholders, including CRA, TR, SR, Tier 2 TC-CCP, Benchmark Administrators, DRSPs, investors, and issuers.
Public versions of enforcement decisions must adhere to applicable standards regarding the protection of professional secrecy and personal data, and as such, may be redacted compared to the non-public version. To ensure this, a confidentiality review is conducted with the involved entity prior to publication.