European Securities and Markets Authority Opines on the Scope of Product Intervention Powers
01/12/2017The European Securities and Market Authority published an Opinion on the scope of the product intervention powers under the Markets in Financial Instruments Regulation. The Opinion focuses on the impact of the exclusion for fund managers from the scope of the MiFIR intervention powers. MiFIR gives national regulators the power to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments (such as units or shares in Undertakings in Collective Investment in Transferable Securities or Alternative Investment Funds) in the EU by investment firms and banks, whether the UCITS or AIF is internally or externally managed, or financial instruments with certain specified features or a type of financial activity or practice. The intervention power only applies to banks authorized under the Capital Requirements Directive and to investment firms authorized under the revised Markets in Financial Instruments Directive (known as "MiFID Firms"), when providing investment services and/or performing investment activities and to market operators including any trading venues they operate. The intervention powers will apply from January 3, 2018, in accordance with the application date of MiFIR.
ESMA has outlined the consequences of a perceived possible lack of clarity around the exclusion of UCITS management companies and AIF Managers from the scope of the MiFIR intervention powers. AIF and UCITS may, as per their authorization under other EU legislation, market units or shares of the AIF or UCITS they manage. If a restriction were to be applied to a MiFID firm in relation to distribution of a UCITS or AIF, such a restriction could not then be applied to a fund management company, because such entities are outside the scope of the intervention powers. As a result, despite the intervention powers, the distribution of UCITS or AIFs subject to MiFIR could still continue through fund management companies if they decide to market their funds themselves.
ESMA is concerned that the discrepancy in the application of the intervention powers may create a risk of arbitrage between MiFID firms and fund management companies and that it could reduce the impact of future measures by leaving entities performing similar activities or distributing funds directly, outside the scope of the intervention powers. There are also financial group structures in many Member States which include both MiFID firms and fund management companies. Such structures could be used to circumvent a ban by channeling the marketing through fund management companies of the group that fall outside of the scope of the intervention power.
ESMA concluded that the EU institutions should address the risk of arbitrage between MiFID firms and fund management companies, suggesting specifically that national regulators and ESMA should have the power to apply the restrictions/prohibitions directly to fund management companies. The additional power would provide a common tool for regulators and ESMA across entities and instruments and assist in the creation of a level playing field across MiFID entities and fund management companies.
View the Opinion.