CJEU clarifies key issues on record keeping obligations of investment firms under MiFID II

On October 28, 2021, the Court of Justice of the European Union (“CJEU”), rendering a decision in the case of EOOD of Varchev Finans against Komisia za finansov nadzorclarified that the relevant provisions of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 (“CDR MiFID”) supplementing Directive 2014/65/EU (“MiFID II”), which deal with the record keeping obligations of investment firms subject to the requirements of MiFID II, should be interpreted as meaning that investment firms are not required to record suitability and adequacy made with regard to clients, and information provided to clients on the costs and charges associated with the investment services provided to clients, in a particular format (for example, in the form of a database). The CJEU concluded that an investment firm is free to choose how it should maintain these records, provided that the firm meets all the requirements arising from Article 72(1) CDR MiFID.


Varchev Finans (“Varchev”) is an investment firm licensed by the Financial Services Regulator in Bulgaria (“KFN”) to provide investment services to clients in accordance with the Bulgarian law transposing the relevant provisions of MiFID II (“Bulgarian law”).

In August 2018, KFN conducted a compliance inspection regarding Varchev. As part of the inspection, Varchev was requested to grant KFN access to all records kept on file relating to its clients in accordance with the relevant provisions of the MiFID CDR.

Under the terms of the MiFID CDR (which, for the avoidance of doubt, is directly applicable in the Member States of the European Union), investment firms are subject, inter alia, to the following obligations:

  • keep the records referred to in Annex I of the MiFID CDR, including, without limitation, suitability assessments carried out in respect of clients, and information on costs and associated fees relating to services and products investment made available to clients; and
  • to keep these records in a medium that allows the storage of the information in a manner accessible for future reference by the competent national authority concerned, and in a form and in a manner such that the following conditions are fulfilled (i) the authority national competent authority is able to easily access these records and reconstruct each key step in the processing of each transaction, (ii) it is possible to easily verify any correction or other modification, as well as the content of the records prior to these corrections or modifications, (iii) it is not possible for the records to be otherwise manipulated or modified, (iv) the company uses computer systems (or equivalent) where analysis of the data cannot be easily carried out due to the volume and the nature of the data, and (v) the company’s devices comply with record-keeping requirements, regardless of s or the technology used.

During the compliance inspection, KFN found that Varchev did not maintain a specific log recording (i) information on suitability assessments performed on clients in connection with the provision of services investment services, and (ii) information provided to clients on the costs and ancillary charges relating to the investment services and products made available to its clients. As a result of the inspection, in May 2019, the KFN imposed two sanctions on Varchev for violating the relevant provisions of the MiFID CDR.

Legal proceedings before Bulgarian national courts

Varchev then filed an action in the District Court of Varna, Bulgaria (“district court”), challenging the decision of the KFN. The District Court dismissed Varchev’s action and confirmed that by failing to maintain specific records containing the information referred to in the MiFID CDR (as noted above), Varchev had in fact breached its record keeping obligations. registers under the MiFID CDR.

Varchev also appealed the District Court’s decision to the Administrative Court in Varna, Bulgaria (“call To research”), alleging that the KFN had misinterpreted and applied the relevant provisions of the MiFID CDR. In particular, it noted that the German, English and French texts of the MiFID CDR do not require investment firms to keep “registers” containing such information in the formal sense, but only to keep “archives” of it. . Varchev therefore asserted that since he retained these records, which records were provided to KFN and reviewed by KFN during the compliance inspection, he did not breach the relevant provisions of the MiFID CDR.

In its response, the KFN argued that the Bulgarian version of the MiFID CDR imposes an obligation on investment firms such as Varchev to keep formal records containing this information, as opposed to records in a general sense.

In view of the above, the Court of Appeal referred the case to the CJEU for a preliminary ruling. In summary, the Court of Appeal asked the CJEU to confirm whether the relevant provisions of the MiFID CDR should be interpreted as requiring investment firms (i) on the one hand, to register the information kept on file in accordance with RDC MiFID in each separate client file, or (ii) on the other hand, to systematically record this information in a centralized register designed for this purpose.

CJEU considerations

The CJEU started by noting that while the Bulgarian version of the MiFID CDR refers to an obligation for investment firms to keep formal records containing the information referred to in the MiFID CDR, it is obvious that inconsistencies exist between the different versions. linguistics of the MiFID CDR . Indeed, while some language versions refer to a “register” (such as the Bulgarian, Spanish and Italian versions), other language versions refer to the obligation to keep “records” of this information (such as the English, French and German).

In this respect, the CJEU recalled that, according to settled case-law, the wording used in a language version of a provision of EU law cannot serve as the sole basis for the interpretation of this provision or be brought to prevail on the other language versions. The provisions of Union law must be interpreted and applied in a uniform manner in the light of the versions existing in all the languages ​​of the European Union and, in the event of divergence between these versions, the provision in question must be interpreted by reference to the object and general scheme of the rules of which it is a part.

The CJEU then proceeded to assess the general scheme and purpose of the MiFID CDR provisions dealing with record keeping requirements and found that the MiFID CDR imposes only generic and light requirements on the form and manner in which this information is to be stored, which includes, among others, the requirement that the information must be easily accessible to the competent national authorities. Furthermore, it noted that the relevant provisions of MiFID II imposing record keeping obligations on investment firms also do not prescribe the technical form in which records must be kept by investment firms.

Following its analysis of the justification of the provisions of the MiFID CDR under consideration, the CJEU clarified that the language versions of the MiFID CDR which specifically refer to “registers” cannot be interpreted in such a way as to oblige companies to investment in keeping the records referenced in the MiFID CDR in a specific format (for example, in the form of a centralized database).

The judgment of the CJEU

In light of the above considerations, the CJEU ruled that the MiFID CDR provisions under consideration should be interpreted as meaning that investment firms are not required to record suitability and suitability made for each client with regard to investment products and services. The CJEU also ruled that the information provided to each client on costs and charges relating to investment services, in the form of a specific or centralized database, and the way in which these records are kept can be freely chosen. by the Company, provided, however, that the Company meets the requirements set out in the MiFID CDR.

This article first appeared in The Malta Independent.