On 28 October 2024, the European Securities and Markets Authority (ESMA) issued a consultation paper setting out proposed amendments to the research provisions in the Markets in Financial Instruments II (MiFID II) Delegated Directive (Commission Delegated Directive (EU) 2017/593).

Background

At present, Article 24(9a) of MiFID II and Article 13 of the MiFID II Delegated Directive set out the conditions that the provision of research by third parties to investment firms must meet in order not to be regarded as an inducement.

Directive (EU) 2021/338 amended MiFID II by, inter alia, inserting a new paragraph (9a) into Article 24. This amendment introduced the possibility for joint payments of execution services and research covering issuers whose market capitalisation did not exceed EUR 1 billion.

The Listing Act provides that joint payments for execution services and research will be made possible irrespective of the market capitalisation of the issuers covered by the research.

But whatever payment option an investment firm may choose in relation to its payments for research (out of its own resources, payments from a separate research payment account or joint payments for research and execution services), it will need to adhere to certain conditions so that the provision of research is not regarded as an inducement.

Earlier this year ESMA received from the European Commission (Commission) a request to provide technical advice on the implementation of the amendments to the Prospectus Regulation, Market Abuse Regulation and the MiFID II Delegated Directive in the context of the Listing Act. The deadline to provide the technical advice is 30 April 2025. This latest consultation paper focuses on the changes to the MiFID II Delegated Directive related to the payments for research and execution services.

Proposals

ESMA proposes to include some high-level requirements in Article 13 of the MIFID II Delegated Directive so as to better align the level 2 legislation with the new options offered in the level 1 text and promote the market for investment research, in a context that continues to regulate inducements and require the proper management of conflicts of interests.

The proposed changes to Article 13 of the MIFID II Delegated Directive (EU) 2017/593 are included in Annex IV of the consultation paper.

The proposed changes include:

  • The introduction of new paragraph 1b in Article 13 of the MIFID II Delegated Directive dealing with the annual assessment provided in new Article 24(9a)(c) of MiFID II.
  • A new paragraph 10 in Article 13 of the MIFID II Delegated Directive that specifically deals with joint payments for execution services and research and clarifies how firms will meet the conditions for the mandatory agreement between the investment firm and the third-party provider in new Article 24(9a)(a) of MiFID II.

Next steps

The deadline for comments on the consultation is 28 January 2024.

ESMA aims to provide its technical advice to the Commission in Q2 2025.