Member Call on EC Consultation on MiFID II/MiFIR Review and ESMA Consultation on MiFID/MiFIR Third-Country Regime - March 4 at 10 am EST/ 3 pm London
ICI Global EU Capital Markets Union Task Force
ICI Global Regulated Funds Committee
ICI Global Trading & Markets Committee RE: Member Call on EC Consultation on MiFID II/MiFIR Review and ESMA Consultation on MiFID/MiFIR Third-Country Regime - March 4 at 10 am EST/ 3 pm London
The European Commission (Commission) and the European Securities and Markets Authority (ESMA) both recently issued consultations on the Markets in Financial Instruments Directive II (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) that are of relevance to global fund managers. The consultations are briefly summarized below.
We will hold a member call on March 4 at 10 am US EST / 3 pm London time to brief members on the content of these consultations and to begin gathering member feedback. Dial in-details for the call are below (a calendar invite with the details will also be sent).
Join Skype Meeting: http://bit.ly/JoinICIMeeting
Join By Phone:
+1 (253) 617-4981 (United States)
+44 20 3443 9669 (United Kingdom)
+32 2 895 39 46 (Belgium)
+353 1 566 1016 (Ireland)
+33 1 73 24 03 15 (France)
Passcode: 185019902#
Find a Local Number: http://bit.ly/LocalPhoneNumber
Please RSVP to Jean Zadeh at jean.zadeh@ici.org if you plan to participate
European Commission Consultation on MiFID II/MiFIR
On February 17, 2020, the Commission launched a consultation on the review of the MiFID II/MiFIR[1] regulatory framework, with comments due by April 20 (Consultation).[2] The wide-ranging consultation covers a broad spectrum of issues and concerns that have arisen since MiFID II/MiFIR went into effect over two years ago. Recently, ESMA has also been consulting on the functioning of certain aspects of the MiFID II/MiFIR framework. Together, the results of these consultations will inform the review reports the Commission is required to present to the European Parliament and Council, and we expect legislative proposals based on these reviews in the third quarter of 2020.
The Consultation is comprised of three sections with 94 questions (and sub-questions). Section 1 contains general questions on the overall functioning of the regulatory framework. With this section, the Commission is seeking to gather feedback from stakeholders on whether a targeted review of MiFID II/MiFIR with an ambitious timeline would be appropriate to address the most urgent shortcomings that have been identified.
Section 2 contains specific questions on a number of well-defined issues that have been raised under the existing regulatory framework. The Commission will use the responses to assess the impact of possible changes to legislation on the basis of proposals put forward in previous public consultations and studies, as well as exchanges with experts. Within Section 2, the Commission has identified the following priority areas for review based on evidence gathered in the two years of implementation of MiFID II/MiFIR:
- The establishment of an EU consolidated tape – questions cover the current state of play; general features of the consolidated tape; the scope of the consolidated tape; and other MiFID II/MiFIR provisions with a link to the consolidated tape.
- Investor protection – questions cover easier access to simple and transparent products; relevance and accessibility of adequate information; client profiling and classification; product oversight, governance and inducements; distance communication; and reporting on best execution.
- Research unbundling rules and SME research coverage – questions cover proposals to increase the production of SME research; alternative ways of financing SMEs research; and promoting access to research on SMEs and increasing the quality of research.
- Commodity markets – questions cover position limits for illiquid and nascent commodity markets; and pre-trade transparency.
Section 2 also includes additional questions on the following areas identified as “non-priority” for the review:
- Derivatives trading obligation
- Multilateral systems
- Double volume cap
- Non-discriminatory access
- Digitalisation and new technologies
- Foreign exchange
Section 3 invites responders to bring to the Commission’s attention any additional regulatory aspects or identified issues that are not raised in the first two sections.
ESMA Consultation on MiFID II/MiFIR
On January 31, 2020, ESMA launched a consultation on draft technical standards on the provision of investment services and activities in the EU by third-country firms under MiFID II/MiFIR. The term “third-country firms” refers to firms that are established outside of the European Union (EU). Comments are due to ESMA by March 31, 2020.
ESMA expects to publish the draft technical standards and send its final report to the European Commission for endorsement in Q3 2020.
Background
Under MiFIR Article 46, third-country firms are permitted to provide investment services and activities to eligible counterparties and per se professional clients if they are registered in the register of third-country firms held by ESMA. The MiFIR third-country regime has not yet been triggered, as the European Commission has not issued an equivalence decision for a third-country jurisdiction, which is required for a firm to register.
Under MiFID II Article 39, third-country firms are permitted to provide investment services and activities to retail and professional clients through a branch established in an EU Member State. Such a branch remains under the exclusive supervisory responsibility of the Member State competent authority where it has been authorized.
The recently adopted Investment Firms Regulation (EU) No 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) introduced changes to the existing MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by third-country firms. Under the revised framework, third-country firms providing investment services and activities in the EU in accordance with Article 46 of MiFIR will be required to report, on an annual basis, detailed information to ESMA on their activities in the EU, including information about the scale and scope of such activities, specific figures regarding their dealing on own account and underwriting and placing activities, the turnover and aggregated value of the assets corresponding to their activities in the EU, their investor protection and risk management arrangements, their governance arrangements and any other information necessary to enable ESMA or the competent authorities to carry out their tasks in accordance with MiFIR. In addition, ESMA is given the power to ask third country firms that are registered with it to provide: (1) any further information in respect of their operations (where necessary for the accomplishment of the tasks of ESMA or the competent authorities in accordance with MiFIR); and (2) the data relating to all orders and all transactions in the EU, whether on own account or on behalf of a client, for a period of five years. Lastly, ESMA now has the power to temporarily prohibit or restrict the provision of investment services or activities in the EU by a third-country firm under Article 46 of MiFIR where (1) the third-country firm has failed to comply with product intervention measures taken by ESMA or the European Banking Authority or the competent authorities of a Member State, or (2) the third-country firm has failed to comply with its annual reporting obligations to ESMA or with a request for information from ESMA, or (3) the third-country firm has not cooperated with an investigation or an on-site inspection carried out by ESMA in accordance with Article 47(2) of MiFIR.
Proposed Technical Standards
ESMA is mandated by the IFR and the IFD to develop draft technical standards setting out the functioning of this new regime. Specifically, in accordance with Article 46(7) and (8) of MiFIR, ESMA is tasked with developing:
- Draft regulatory technical standards to specify the information that third-country firms must provide to ESMA for the registration in the ESMA register of third-country firms and for the information that third-country firms have to report annually to ESMA;
- Draft implementing technical standards to specify the format in which the information for the registration of the firm and for the annual report to ESMA should be submitted.
In addition, in accordance with Article 41(5) of MiFID II, ESMA is tasked with developing:
- Draft implementing technical standards to specify the format in which the new flow of information provided by MiFID II is to be reported to NCAs by branches of third-country firms.
Eva M. Mykolenko
Associate Chief Counsel - Securities Regulation
endnotes
[1] Directive and Regulation on Markets in Financial Instruments (respectively MiFID II – Directive 2014/65/EU – and MiFIR – Regulation (EU) No 600/2014).
[2] The consultation is available at https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2020-mifid-2-mifir-review-consultation-document_en.pdf.