On 28 September 2020, the European Securities and Markets Authority (ESMA) published a final report containing draft regulatory and implementing technical standards (RTS and ITS) on the provision of investment services and activities in the EU by third-country firms under MiFIR and MiFID II.
The draft technical standards are published following the changes to the MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by third-country firms, introduced by the Investment Firms Regulation (IFR) and Investment Firms Directive (IFD).
The MiFIR third-country regime, which will result from the changes introduced by the IFR to MiFIR, includes a new and significant reporting flow from third-country firms to ESMA on an annual basis and gives ESMA more powers to request information as well as to temporarily restrict or prohibit the provision of investment services or activities in the EU by a third-country firm.
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, granular information to ESMA on their activities in the EU such as: 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 to carry out their tasks in accordance with MiFIR.
The IFR also gives ESMA the power to:
- ask third-country firms registered in the ESMA register to provide: (i) any further information in respect of their operations (where necessary for the accomplishment of the tasks of ESMA or Member State competent authorities in accordance with MiFIR) (last subparagraph of Article 46(6a) of MiFIR); and (ii) 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 (Article 46(6b) of MiFIR); and
- conduct on-site inspections (Article 47(2) of MiFIR).
In addition to ESMA’s powers to withdraw the registration of a third-country firm in the ESMA register (in accordance with Article 46(6c) and Article 49(2) of MiFIR), the new MiFIR third-country regime gives ESMA 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:
- the third-country firm has failed to comply with product intervention measures taken by ESMA or the EBA or competent authorities of a Member State under Articles 40 to 42 of MiFIR; or
- the third-country firm has failed to comply with its annual reporting obligations to ESMA under Article 46(6a) of MiFIR or with a request for information from ESMA under Article 46(6a) or (6b); or
- 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.
ESMA has developed under the revised Articles 46(7) and (8) of MiFIR:
- draft RTS 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; and
- draft ITS 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 accordance with revised Article 41(5) of MiFID II, ESMA has also published draft ITS to specify the format in which the new flow of information provided by MIFID II is to be reported to Member State competent authorities by branches of third-country firms.
The draft technical standards are submitted to the European Commission for adoption. In accordance with Articles 10 and 15 of Regulation EU No 1095/2010, the European Commission has to decide whether to adopt the technical standards within 3 months.