On 28 September 2015, the European Securities and Markets Authority (ESMA) submitted to the European Commission a draft regulatory technical standard (RTS) under MiFID II on criteria for establishing when an activity is to be considered to be ancillary to the main business (draft RTS 20).

Subsequently the Commission confirmed to ESMA its intention to endorse draft RTS 20 subject to a number of changes. In particular, the Commission requested ESMA to include, when proportionate and appropriate, a capital based test for groups that have undertaken significant capital investments, relative to their size, in the creation of infrastructure, transportation or production facilities or groups that undertake activities or investments which cannot be hedged in financial markets.

ESMA has now published an opinion in response to the Commission’s request to amend draft RTS 20. Key points in ESMA’s opinion include:

  • ESMA still considers that the main business test proposed in draft RTS 20 is in line with the objectives pursued by the exemption contained in Article 2(1)(j) MiFID II. ESMA does not oppose revising the initial thresholds proposed for this test if the Commission wants to be more cautious in its calibration;
  • ESMA reiterates that the issues identified in its final report of 28 September 2015 regarding the introduction and calibration of a capital based test are still valid. However, should the Commission deem the introduction of a capital test necessary, it has identified some metrics for a numerator and denominator that could be used to construct a capital test as an alternative to the main business test already designed in draft RTS 20; and
  • ESMA has introduced in the attached new version of draft RTS 20 a limited number of changes that are intended to clarify some of the perceived ambiguities on its application that could have undermined the effectiveness of the RTS.

View ESMA issues opinion on MiFID II standards on ancillary activities, 31 May 2016