On 13 July 2021, the European Securities and Markets Authority (ESMA) issued a public statement to remind firms that the receipt of payment for order flow (PFOF) raises significant investor protection concerns. The statement also reminds firms of their key MiFID II obligations intended to ensure that firms act in their clients’ best interest when executing their orders.

The statement concludes that PFOF raises serious investor protection concerns and in light of these concerns and of the multiple requirements applying to PFOF, ESMA considers that in most cases it is unlikely that PFOF could be compatible with MiFID II and its delegated acts.

ESMA has requested that Member State competent authorities prioritise PFOF in their supervisory activities for 2021 or early 2022. These supervisory activities should aim at assessing the actual impact of PFOF on firms’ compliance with the best execution, conflicts of interest and inducements requirements including whether firms receiving PFOF are able to demonstrate that they consistently achieved the best possible result for retail clients when executing their orders, also taking into account, where relevant, firms’ cross-border activities.