With the separation of EU and UK requirements and the beginning of divergence, determining whether your firm needs to complete RTS 27 and 28 reports can be very confusing. We summarise the current status of each report across both regimes.
|RTS27||Investment firms are currently not required to publish the RTS 27 quarterly reports||Technically the requirement is reactivated from 28/2/23, however NCAs have been told not to prioritise enforcement.|
|RTS28||Investment firms are currently not required to publish the RTS 28 annual reports||The 2-year reporting suspension ended on 28th Feb 2023.|
ESMA is in the process of making necessary legislative amendments to remove RTS 27 entirely. They published a statement on 14 December 2022 to promote coordinated action by NCAs in respect of RTS 27 reports, namely NCAs were advised to deprioritise supervisory actions with respect to the obligation after 28th February 2023 when it technically reapplies. ESMA expects that “re-application will only be temporary” whilst the legislative process is finalised through an amendment to Article 27(3) of MiFID II.
ESMA acknowledges that due to 2 years of RTS 27 reports not being required, reinstating the RTS 27 reporting obligation now is likely to require execution venues to delegate significant resources to restart and maintain the reporting, possibly for a short period, until its expected abolishment.
A Directive in 2020 amended MiFID II, under the Capital Markets Recovery Package (CMRP), to temporarily suspend the RTS 27 reporting requirement until 28 February 2023. The CMRP was initially introduced by the European Commission with the aim to make it easier for capital markets to support economic recovery in the aftermath of the COVID-19 crisis. The Commission had proposed a number of amendments to the MiFID II rules to simplify information requirements and address the needs of the commodity derivatives market, with suspending the RTS 27 obligation to free up resources within the industry being one of them.
Since 1 December 2021, UK firms and execution venues have not been required to prepare RTS 27 and RTS 28 reports.
Preparation of RTS 27 and RTS 28 reports was difficult and many very new CFD providers found the process particularly difficult. The root cause of the complexity involved in these reports is ESMA’s guidance on RTS 27 which likens CFD providers’ platforms and services to that of Trading Venues. As a result, in applying and complying with RTS 27, CFD providers were expected to collect, collate and report on information, which they do not have access to and from a perspective which they do not operate in.
In the long term, it is unclear whether the obligation for RTS 27 reports will continue, due to even ESMA noting that there appeared to be little evidence on the efficacy of RTS 27 and RTS 28, and a lack of investor engagement.
RTS 27 – the obligation for investment firms to publish a report on a variety of execution quality metrics to enable market participants to compare execution quality at different venues (known as RTS 27 reports).
RTS 28 – the obligation for investment firms to produce an annual report setting out the top 5 venues used for executing client orders and a summary of the execution outcomes achieved (known as RTS 28 reports). This obligation was applicable to firms engaged in the provision of portfolio management services, reception and transmission of orders, and execution of client orders.