05/03/2018 – By Gaurav Chandra, Product Manager, AxiomSL EMEA
In 2013, European Securities Markets Authority (ESMA) revised the rules on the disclosure of home Member State through the Transparency Directive Amendments (TDA). This requires all issuers with securities declared to trading on a European Union (EU) market to identify and disclose their home Member State to the necessary competent authorities. Today, the widespread misconception of the term ‘home Member State’ still continues to cause considerable challenges to the financial institutions (FIs).
ESMA defines Home Member State as the member state of the competent authority chosen by the issuer from amongst the EU member states where its securities are admitted to trading on a regulated market. This has a significant implication as home Member State is the main driver to identify the relevant jurisdiction within EU for Shareholding Disclosure (SD) reporting obligations.
So much depends on reputation
While country of incorporation or country of listing variables serve as the primary drivers for most securities in determining their appropriate jurisdictions, home Member State is needed for EU jurisdictions. And hence, from an EU perspective, getting accurate home Member State information for relevant securities is critical. That being said, in our experience, many FI’s trading in the EU still fail to successfully identify this information. Year after year, these firms have been applying country of incorporation or country of listing as a default for home Member State which, in fact, may be inaccurate. As firms continue to follow this potentially incorrect practice, they may be exposing themselves to compliance gaps as well as operational and reputational risk. Furthermore, inaccurate reporting may also result in stern action by the Relevant Competent Authority (RCA).
To prevent any repercussions, firms need to ensure that relevant disclosures are reported to the right jurisdictions linked to their trading activities. Correctly identifying the regulator to fulfil disclosure requirements is a crucial starting point on the road to successful compliance.
Simplifying home Member State
Sourcing home Member State is one of the most difficult data elements many of our clients face. As a result, we receive countless enquiries from financial institutions on the issue. So, how do you determine the correct home Member State for a security?
We think firms can potentially make use of publicly available regulatory data which is constantly updated by ESMA. This information was previously available in the ESMA register under shares admitted to trading on EU Regulated Markets. Post-MiFID II, the list was replaced by Financial Instruments Reference Data System (FIRDS).
In our opinion, the updated ESMA register on equities in FIRDS, which indicates the RCA of the security, may be the best current source for identifying home Member State. It is important to highlight that FIRDS is still relatively new, and whilst ESMA has taken all care to get the information as accurate as possible, the actual ownership of sourcing the correct home Member State still sits with the FIs.
Firms can also find out the home Member State information directly from the issuers, as all issuers are obliged to disclose this data. Although this would be the most accurate method to access the information, firms may find it impractical, assuming they deal with thousands of issuers.
Staying ahead of the curve
Home Member State is one of the many concepts that can potentially impact market participants in their quest to remain compliant. Increased regulatory scrutiny means relevant authorities are more discerning than ever. It is imperative to stay on top of the latest regulatory developments in order to efficiently address the constantly-evolving compliance environment. Firms should move forward by embracing these regulatory obligations through robust solutions, automation and governance in order to achieve that much sought after competitive advantage.
AxiomSL’s strategic regulatory reporting platform offers end to end automated solution to ensure compliance in an accurate and timely manner whilst greatly reducing the cost and complexity of Shareholding Disclosure requirements involved in managing disclosure related activities. Our team of regulatory experts analyse the regulatory landscape globally and keep abreast of any rule changes which significantly reduces the maintenance burden on firms. Furthermore, we readily share our strong domain knowledge and expertise with firms and provide practical regulatory advice to ensure they remain compliant.
Click to find out more about AxiomSL’s Shareholding Disclosures solution.