European Securities and Markets Authority Recommends Tightening of Third-Country Requirements
10/01/2018The European Securities and Markets Authority has published a letter (dated September 26, 2018) from ESMA Chair Steven Maijoor addressed to Valdis Dombrovskis, the Vice President of the European Commission. The purpose of the letter is to contribute to any further work the Commission may undertake on the investor protection and intermediaries-related requirements under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation.
The letter highlights four concerns that were initially considered in the context of the U.K.'s planned withdrawal from the EU, but which ESMA believes apply more widely beyond the Brexit debate:
- The MiFIR regime for third-country firms providing investment services and activities to eligible counterparties and per se professional clients. ESMA believes the supervision and enforcement framework for third-country firms operating within the EU may need further improvements. It sets out possible options the Commission might consider to introduce further harmonization to ensure a consistent and convergent level of protection for investors interacting with third-country firms.
- The MiFID II regime for third-country firms providing investment services and activities to retail and professional clients on request. ESMA notes that the MiFID II regime on the provision of investment services to retail clients is fragmented across the EU, with member states having discretion whether or not to require branches to be established. ESMA has concerns that this can give rise to legal uncertainty and regulatory and supervisory arbitrage between jurisdictions and invites the Commission to consider requiring further harmonization of national regimes.
- Third-country firms providing investment services and activities at the exclusive initiative of EU clients (“reverse solicitation”). ESMA recommends that the Commission consider reviewing the MiFID II framework in order to "mitigate" the effects of reverse solicitation. It suggests three options the Commission might consider, including reassessment and clarification of existing provisions on reverse solicitation.
- Investment firms outsourcing critical or important functions other than those related to portfolio management to third-country providers. ESMA notes that MiFID II's stricter requirements on outsourcing to third-country entities applies only to the outsourcing of functions related to portfolio management. ESMA recommends that the application of the requirements be extended to the outsourcing of critical and important functions to third-country entities.
View the letter.
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