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1. MIFID II
1.1 Call for ESMA contributions on certain retail investor protection topics under MiFID II
On October 1, 2021, the European Securities and Markets Authority (ESMA) has published a call for papers on a number of topics relating to the protection of retail investors under Directive 2014/65/EU (MiFID II) to assist the European Commission in the preparation of legislative proposals implementing certain aspects of the retail investment strategy and to make appropriate adjustments to the legislative framework.
ESMA requests information from stakeholders on three topics:
- Disclosures: identification of any material overlaps, gaps, redundancies and inconsistencies in investor protection legislation that could have a detrimental effect on investors;
- Digital Disclosures: An assessment of how regulatory disclosures and communications can best work for consumers in the digital age, and offers options for how existing rules could be adapted, such as allowing layered information; and
- Digital tools and channels: an assessment of the risks and opportunities in retail investing arising from both the growing availability of digital tools and increasing levels of direct investor involvement, particularly through online trading platforms and robo-advisors.
The call for submissions closed on January 2, 2022. ESMA intends to submit its opinion to the European Commission by April 30, 2022.
A copy of the call for evidence is available here.
1.2 Delegated regulation specifying the ancillary activity test criteria under MiFID II published in the Official Journal
On October 20, 2021, the Commission Delegated Regulation (EU) 2021/1833 supplementing MiFID II by specifying the criteria for determining when an activity should be considered ancillary to the main activity at group level was published in the Official Journal of the European Union (OJ).
Persons who deal on their own account or provide investment services to clients in commodity derivatives, emission allowances or derivatives thereof are subject to an exemption under MiFID II if they carry out an activity ancillary to their main activity on a group basis and if the main activity is not the provision of investment services or banking activities within the meaning of Directive 2013/36/EU (CRD IV) (Exemption for ancillary activity).
The new Delegated Regulation replaces Commission Delegated Regulation 2017/592 (RTS 20). It removes the overall market size test from Article 2 RTS 20 and introduces the new de minimis threshold test.
The delegated regulation entered into force on November 09, 2021.
A copy of the delegated regulations is available here.
1.3 ESMA updates MiFID II questions and answers on investor protection and intermediaries: November 2021
On November 19, 2021, ESMA published an updated version of its questions and answers (Questions and answers) on the protection of investors and intermediaries under MiFID II and Regulation (EU) No. 600/2014 (Regulation of Markets in Financial Instruments or MiFIR).
The updated version contains a new Q&A in the Product Governance section which confirms that the mere presence of a make-whole clause is not sufficient for a bond to be exempt from MiFID II product governance requirements . It confirms that bonds with a netting clause and no other embedded derivatives which are marketed to retail and/or professional clients are exempt from these requirements, while bonds with a netting clause and with one or more embedded derivatives are marketed to retail clients and/or professional clients are subject to MiFID II product governance requirements.
A copy of the updated ESMA Q&A is available here
1.4 European Commission legislative proposals to amend MiFIR and MiFID II
On 25 November 2021, the European Commission adopted both a legislative proposal for a regulation amending MiFIR (the
draft regulation) and a legislative proposal for a directive amending MiFID II (the draft directive).
The European Commission notes that the proposed changes aim to make it easier for investors to access the market data they need to invest in stocks or bonds and to strengthen EU market infrastructures.
The draft regulations include the following:
- Changes to the trade data transparency regime;
- Proposal from a single supplier of consolidation tapes (TPC) for each asset class;
- Adjustments to equity trading/derivative trading obligations;
- The regulatory technical standard (RTS) 27 the best execution reporting requirement is removed; and
- Prohibition of systematic internalisers (IF) offering payment for retail order flows (PFOF).
With respect to the equity trading obligation adjustments, it is proposed that the scope of the equity trading obligation (STO) is limited to EAA ISIN codes (i.e. shares admitted to trading on a regulated market in the EEA), but trading on third country venues is permitted when trading in the local currency. It is also proposed to establish a European “official list” of stocks subject to the STO. With respect to the derivatives trading obligation (DTO), it is proposed to align it with the requirements of the OTC Products Regulation (OTC) derivatives, central counterparties (CCP) and the Trade Repositories Regulation (EU) No. 648/2012 (European Market Infrastructure Regulation or EMIR) including by: (I) exempting small financial counterparties from the scope and (ii) providing for the possibility of suspension of the DTO where the clearing obligation has been temporarily suspended; and (iii) allowing the possibility of suspending the DTO for certain investment firms that would be subject to overlapping obligations when interacting with non-EU counterparties on non-EU platforms.
Most of the changes proposed by the draft directive concern the draft proposed regulations summarized above, including the requirements imposed on member states:
- Require regulated markets, investment firms and market operators to put in place arrangements to ensure they meet the data quality standards set out in MiFIR; and
- Penalize breaches of certain new MiFIR provisions, including mandatory CTP contributions.
The Council of the EU and the European Parliament will now examine the legislative proposals.
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