On 1 October 2018, the European Securities and Markets Authority (ESMA) wrote to the European Commission in relation to additional issues concerning MiFID II / MiFIR requirements on investor protection and intermediaries. ESMA’s letter follows earlier correspondence with the Commission last year on the MiFID II / MiFIR requirements regarding trading venues.

The letter covers:

  • concerns regarding the MiFIR regime for third country firms providing investment services and activities to eligible counterparties (ECP) and per se professional clients. ESMA believes that the MiFIR regime does not ensure a consistent and convergent level of protection to investors interacting with third country firms and would like to support the Commission in any analysis concerning any further harmonisation regarding the rules applicable to third country firms providing investment services to ECP and per se professional clients. Possible options to consider include ensuring that third country firms carrying out services and activities in the EU directly comply with the relevant MiFID II / MiFIR provisions when services are provided to ECP or per se professional clients and that some direct supervisory powers are exercised by national competent authorities in the EU;
  • concerns regarding the MiFID II regime for third country firms providing investment services and activities to retail and professional clients on request. ESMA states that the lack of additional harmonisation in the regime concerning third country firms interacting with retail clients in the EU may pose the risk of legal uncertainty and regulatory and supervisory arbitrage between jurisdictions with potential detrimental implications for investors;
  • third country firms providing investment services and activities at the exclusive initiative of EU clients (reverse solicitation). ESMA recommends that the Commission review the MiFID II framework in order to mitigate the effects of reverse solicitation. Options include: (i) the explicit obligation for third country firms to demonstrate to supervisory authorities in the EU, upon request, the client’s initiative; (ii) the submission of any dispute to EU Courts and dispute-resolution bodies, upon the client’s request, even in the case of reverse solicitation; or (iii) possible reassessment and clarification of existing provisions on reverse solicitation; and
  • investment firms outsourcing critical or important functions other than those related to portfolio management to third country providers. ESMA suggests that the outsourcing of critical and important functions to third country entities should be subject to a stricter regime under MiFID II.