1. MIFID II
1.1 ESMA highlights areas for improvement in firms' disclosure of cost and charges under MIFID
On 6 July 2023, the European Securities and Market Authority (ESMA) published a Statement on its 2022 Common Supervisory Action (CSA) and mystery shopping exercise on Directive 2014/65/EU (MiFID II) requirements on information on costs and charges (Statement).
The Statement forms part of ESMA's ongoing efforts to ensure supervision of costs and charges disclosure and enhancement of investor protections. The Statement discusses ESMA's findings on completion of two exercises including a common supervisory action (CSA) which involved 27 EEA National Competent Authorities (NCAs) and a mystery shopping exercise which involved 10 NCAs, both coordinated by ESMA.
The CSA focused on ex-post costs and charges information provided to retail clients and the mystery shopping exercise focused on the ex-ante costs and charges information provided to retail clients.
The two exercises involved on-site and remote visits to firms and the key findings are as follows:
- In terms of ex-post (i.e. after the event) costs and charges
disclosures, the CSA exercise identified that while firms overall
comply with the majority of the ex-post cost and charges disclosure
requirements under MiFID II, there is considerable room for
improvement. For instance, the CSA exercise found that costs are
not always shown by firms as a percentage in addition to being
shown as a nominal amount, implicit costs are not always presented
in disclosures, and the content and format of ex-post disclosures
vary significantly between firms.
- In terms of ex-ante (i.e. before the event) costs and charges disclosures, the mystery shopping exercise revealed that retail investors are often not provided with proper MiFID ex-ante information in a durable medium, with the information provided often incomplete or being provided orally. Furthermore, the mystery shopping exercise revealed that at times, ex-ante information on costs and charges is often disclosed late in the client's decision-making process.
Based on the key findings detailed in the Statement, ESMA proposes to review and develop new Q&A responses to address several of the shortcomings identified and to work towards a possible standardised EU format for the provision of information about costs and charges to clients.
A copy of the Statement can be accessed here.
1.2 Report on sanctions and measures imposed under MiFID II in 2022
On 7 July 2023, ESMA published their annual report on sanctions imposed under MiFID II in 2022. In their report, ESMA has found that both the number of Member States in which sanctions and measures were imposed, and the total amount of administrative fines, have increased in 2022 in comparison to 2021. However, ESMA points out that this figure should be read in context, noting that the figures include particularly high sanctions from merely a few member states.
The annual report features a table with a breakdown of the sanctions imposed upon each member state. In total, in 2022, 281 sanctions and measures were imposed across 25 Member States, amounting to an aggregated figure of EUR 21,034,117 in administrative fines.
The annual report can be accessed here.
1.3 Manual on post-trade transparency under MiFID II/ MiFIR
On 10 July 2023, ESMA published a manual on post-trade transparency under MiFID II/ MiFIR (Manual).
The Manual is a soft-law Level 3 tool similar to the Q&As and aims to promote common approaches and practices in the areas of post-trade transparency and the transparency calculations, addressing matters such as:
- Scope of instruments and transactions subject to post-trade transparency;
- The responsible parties for reporting and publishing post-transparency information; and
- When post-trade information has to be made public.
Relevant ESMA Q&As previously published on the in-scope topics are incorporated into the Manual and new "Level 3" guidance is also included therein.
A copy of the Manual can be accessed here.
1.4 ESMA publishes Final Report on revised technical standards for passporting services
On 11 July 2023, ESMA published their final report (Final Report) on the review of the technical standards for passporting under Article 34 of MiFID II (Freedom to provide investment services and activities).
The Final Report follows ESMA's completion of a consultation in February 2023 with stakeholders regarding ESMA's proposals for the review of the current regulatory technical standards (RTS) pursuant to Commission Delegated Regulation (EU) 2017/1018 and the current implementing regulatory standards (ITS) pursuant to Commission Implementing Regulation (EU) 2017/2382.
The Final Report contains revised draft technical standards, including draft RTS and revised draft ITS, which outline:
- The information to be notified by, inter alia, investment firms seeking to provide cross-border services without establishing a branch; and
- Standard forms, templates and procedures for the transmission of information related to the provision of such cross-border services.
The revised draft technical standards, if adopted by the European Commission, will add new information requirements to the list of details that investment firms are required to provide both at the passporting notification stage and latterly if there is to be any change of the investment services being provided on a cross-border basis. The revisions to the current RTS and ITS aim to improve NCAs' oversight of investment firms' cross border activities.
The revised draft technical standards have been submitted by ESMA to the European Commission who are now considering whether to adopt the revised draft technical standards as formal legislative proposals.
The Final Report can be accessed here.
The existing RTS can be accessed here.
The existing ITS can be accessed here.
1.5 Supervisory briefing on understanding the definition of advice under MiFID II
On 11 July 2023, ESMA published a supervisory briefing on understanding the definition of advice under MiFID II (Supervisory Briefing). The Supervisory Briefing is the first update on the definition of advice under the MiFID regime since the publication of the Questions and Answers document on this matter by ESMA's predecessor (the Committee of European Securities Regulators or CESR) in 2010.
The Supervisory Briefing sets down ESMA's supervisory expectations in relation to credit institutions, investment firms as well as UCITS management companies and AIFMs which have additional MiFID "top-up" permissions to provide investment advice.
The Supervisory Briefing outlines the definition of advice in the context of whether personal advice, information presented as 'investment research', general recommendations and generic comments could constitute as "investment advice". It also provides guidance on the presentation of a recommendation as suitable for a client or based on a client's circumstances. The Supervisory Briefing outlines perimeter issues around the definition of personal recommendation, including disclaimers to the client and failing to use known client information in an attempt to try avoiding the qualification as investment advice.
ESMA also notes that as the Supervisory Briefing is based on an earlier CESR Q&A on "Understanding the definition of Advice under MiFID", it does not represent new policy.
For more information, please see Dillon Eustace's briefing on the matter here.
The Supervisory Briefing can be accessed here.
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