In February, the European Commission (EC) published its MiFID II "Quick-Fix" Directive, officially known as Directive (EU) 2021/338, which acknowledges pandemic disruptions and market concerns in its attempt to streamline certain regulatory requirements. The Quick-Fix amendments to MiFID II, therefore, aim to simplify certain existing requirements in a targeted manner in order to alleviate administrative burdens on investments firms, whilst simultaneously safeguarding investor protection.
Evidently, from the MFSA circular published on the 16th November 2021, these Quick-Fix changes have already been transposed locally via amendments to the Conduct of Business Rulebook. These changes shall come into effect from the 28th of February 2022 and are applicable to all investment firms regulated by MiFID II.
Below is a summary of some of the key changes introduced through the Quick-Fix Directive.
(a) The phase-out of paper-based information as the default method of communication
Investment information is no longer to be provided on paper (as per the current default option under a "durable medium") but needs to be provided, as a default option, in electronic format such as through e-mail for instance. Retail clients will now be able to opt-in and request the provision of investment information on paper. The chosen option would then be used for the provision of all information documents to the client.
(b) Costs and charges disclosure requirements
Currently, the information requirements on costs and charges apply for all client categories. However, Professional Clients and Eligible Counterparties often do not need standardised and mandatory costs information, especially due to the fact that they are provided with bespoke information which is tailored to their needs and often more detailed. Moreover, information on costs and charges no longer need to be disclosed to professional clients and eligible counterparties provided that the services being provided do not include investment advice and portfolio management services.
(c) Delayed transmission of cost information when using distant communication channels
In case of distance selling communications, all clients using all services should be able, under certain conditions, to receive costs and charges information just after the transaction.
(d) Ex post reporting requirements
The obligation to provide clients with ex post reports on services, including type and complexity of products, nature of services and associated costs, shall no longer be applicable to professional clients. Nevertheless, professional clients have the right to opt-in to receive such reports, and proper records of the professional clients' opt-in communication are to be kept.
(e) Best Execution Reports
The obligation of each trading venue and systematic internaliser for financial instruments, to make available to the public, information relating to the quality of execution of transactions on the respective venue, on an annual basis, is being suspended until 28 February 2023. The European Commission will decide whether this reporting obligation should be revised or removed permanently.
(f) Alleviate Cost-Benefit Analysis in the case of Switching
The cost-benefit analysis that investment firms carry out to demonstrate to clients whether the benefits of switching a financial product will outweigh the costs, is no longer required in respect of professional clients. Again, a right to opt-in for professional clients applies. The Glossary now also includes a new definition of ''switching of financial instruments.''
(g) Product governance exemption
Certain product governance requirements shall no longer apply where (i) financial instruments are marketed or distributed exclusively to Eligible Counterparties or (ii) investment services provided relate to bonds with no other embedded derivative than a "make whole" clause. ESMA has clarified in its Q&A that non-complex bonds remain subject to product governance requirements. Therefore, this exemption only applies to bonds with just a make-whole clause and no other embedded derivative.
(h) Partial Reversal of Research Unbundling Rule
Investment firms are now allowed to receive research from third parties without having to pay separately for it, subject to three conditions, each of which assumes that the third-party research provider is also providing execution services to the investment firm.
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