1. MIFID II
1.1 ESMA final report on guidelines on aspects of appropriateness and execution-only under MiFID II
On 3 January 2022, the European Securities and Markets Authority (ESMA) published a final report on guidelines on aspects of the appropriateness and execution-only requirements under Directive 2014/65/EU (MiFID II) (the Guidelines), following consultation in January 2021.
The Guidelines relate to the framework as set out in Article 25(3) and (4) of MiFID II and Articles 55 to 57 of the Commission Delegated Regulation (EU) 2017/565 (MiFID II Delegated Regulation). Their purpose is to enhance clarity and foster convergence in the application of certain aspects of the appropriateness and execution-only requirements. The Guidelines cover the following issues:
- Information to clients about the purpose of the appropriateness assessment and about execution-only;
- Know your client (KYC) and know your product (KYP), including arrangements necessary to understand clients and the extent of the information to be collected from clients;
- Matching clients with appropriate products, including arrangements necessary to ensure a consistent appropriateness assessment and the effectiveness of warnings; and
- Other related requirements, including staff qualifications and record-keeping.
The Guidelines will apply from 6 months of the date of their publication on ESMA's website in all EU official languages.
A copy of the Guidelines can be accessed here.
1.2 European Commission adopts Delegated Regulation on liquidity thresholds and trade percentiles used to determine SSTI applicable to non-equity instruments
On 12 January 2022, the European Commission adopted a Delegated Regulation (the Delegated Regulation) amending the regulatory technical standards (RTS) laid down in Delegated Regulation (EU) 2017/583 (RTS 2) relating to the adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (SSTI) applicable to certain non-equity instruments, under Regulation (EU) 600/2014 (Markets in Financial Instruments Regulation or MiFIR).
RTS 2 imposes transparency requirements for trading venues and investment firms in respect of bonds and other non-equity products, and provides the methodology to assess the liquidity and the SSTI of bonds. Under the RTS 2 phased approach to both the methodology to calculate the liquidity of bonds and SSTI non-equity instruments, ESMA annually assesses if a move to another stricter phase is warranted.
The Council of the EU and the European Parliament will consider the Delegated Regulation for approval. Where neither object, the Delegated Regulation will enter force 20 days after it is published in the Official Journal of the European Union (OJ).
A copy of the Delegated Regulation can be accessed here.
A copy of RTS 2 can be accessed here.
1.3 Central Bank Statement for MiFID investment firms authorised to provide the MiFID investment services of dealing on own account or underwriting of financial instruments on a firm commitment basis
On 26 January 2022, the Central Bank of Ireland (Central Bank) published a statement for MiFID investment firms authorised to provide services of dealing on own account or underwriting of financial instruments on a firm commitment basis (the Statement).
The Statement follows the European Banking Authority (EBA) final report on RTS required by Directive (2013/36/EU) (Capital Requirement Directive IV or CRD IV) on the reclassification of investment firms as credit institutions (the Final Report), published on 20 December 2021.
The Central Bank provides that all MiFID investment firms authorised to provide the MiFID investment services of dealing on own account or underwriting of financial instruments on a firm commitment basis should give due regard to both the threshold reporting requirements and the threshold calculation methodology for determining the need for reclassification of an investment firm as a credit institution set out in these publications.
MiFID investment firms that anticipate meeting the threshold triggering the requirement to seek re-authorisation as a credit institution are expected to:
- Engage with the Central Bank regarding their re-authorisation within 3 months of the date of entry into force of the Delegated Act; and
- Submit an application for re-authorisation as a credit institution within 6 months of the date of entry into force of the Delegated Act.
A copy of the Statement can be accessed here.
A copy of the Final Report can be accessed here.
1.4 ESMA issues consultation on Guidelines on certain aspects of MiFID II Suitability Requirements
Under existing MiFID II requirements, EU investment firms which provide the services of investment advice (whether independent or not) or portfolio management to their clients (In-Scope MiFID Firms) 1 must carry out a suitability assessment on their clients, taking into account the client's knowledge and experience, financial situation and investment objectives. From 2 August 2022, In Scope MiFID Firms will be required to collect information from their clients regarding their sustainability preferences and to consider them as part of the clients' suitability assessment.
On 27 January 2022, ESMA published a consultation paper on draft guidelines on certain aspects of the suitability requirements under MiFID II (Consultation Paper), updating the current guidelines on suitability under MiFID II, dated 28 May 2018. The Consultation Paper sets down ESMA's proposed revisions to the existing guidelines to provide guidance on the incorporation of sustainability preferences into the suitability assessment process as well as taking into account the results of the 2020 common supervisory action (CSA) carried out by NCAs on the application of the MiFID II suitability requirements amongst other changes.
The consultation process closes on 27 April 2022. ESMA will consider the feedback and publish a final report in Q3 2022.
A copy of the Consultation Paper can be accessed here.
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