1. MIFID II

1.1 ESMA call for evidence on certain retail investor protection topics under MiFID II

On 1 October 2021, the European Securities and Markets Authority (ESMA) published a call for evidence on a number of retail investor protection topics under Directive 2014/65/EU (MiFID II) to assist the European Commission in the preparation of legislative proposals implementing aspects of the retail investment strategy and to make appropriate adjustments to the legislative framework.

ESMA is requesting information from stakeholders on three topics:

  • Disclosures: identification of any significant overlaps, gaps, redundancies and inconsistencies across investor protection legislation that might have a detrimental effect on investors;
  • Digital disclosures: an assessment of how regulatory disclosures and communications can work best for consumers in the digital age, and proposes options as to how existing rules might be adapted, such as allowing layered information; and
  • Digital tools and channels: an assessment of both risks and opportunities with respect to retail investing stemming from both the increasing availability of digital tools and the increasing levels of direct investor participation, in particular via online trading platforms and robo-advisors.

The call for evidence closed on 2 January 2022. ESMA intends to deliver its advice to the European Commission by 30 April 2022.

A copy of the call for evidence can be accessed here.

1.2 Delegated Regulation specifying criteria for ancillary activity test under MiFID II published in the Official Journal

On 20 October 2021, Commission Delegated Regulation (EU) 2021/1833 supplementing MiFID II by specifying the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level was published in the Official Journal of the European Union (OJ).

Persons dealing on own account, or providing investment services to clients, in commodity derivatives, emission allowances or derivatives thereof are subject to an exemption under MiFID II if they are carrying on an ancillary activity to their main business on a group basis and the main business is not the provision of investment services or banking activities under Directive 2013/36/EU (CRD IV) (Ancillary Activity Exemption).

The new Delegated Regulation replaces Commission Delegated Regulation 2017/592 (RTS 20). It deletes the overall market size test of Article 2 RTS 20 and introduces the new de-minimis threshold test.

The Delegated Regulation came into force on 09 November 2021.

A copy of the Delegated Regulation can be accessed here.

1.3 ESMA updates MiFID II Q&As on investor protection and intermediaries: November 2021

On 19 November 2021, ESMA published an updated version of its Questions and Answers (Q&As) on investor protection and intermediaries under MiFID II and Regulation (EU) No 600/2014 (Markets in Financial Instruments Regulation 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 exempted from the MiFID II product governance requirements. It confirms that bonds with a make-whole clause and no other embedded derivative which are marketed to retail and/or professional clients are exempt from such requirements whilst bonds with a make-whole clause and with one or more embedded derivative which are marketed to retail and/or professional clients are subject to MiFID II product governance requirements.

A copy of the updated version of ESMA's Q&As can be accessed 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 amendments aim to empower investors by enabling them to access market data they need to invest in shares or bonds more easily and by making EU market infrastructures more robust.

The draft Regulation includes the following:

  • Changes to the trade data transparency regime;
  • Proposal for a single consolidation tape provider (CTP) for each asset class;
  • Adjustments to the share trading / derivatives trading obligations;
  • The regulatory technical standard (RTS) 27 best execution reporting requirement is being deleted; and
  • Prohibition on systematic internalisers (SIs) offering payment for retail order flow (PFOF).

In respect of the adjustments to the share trading obligations, it is proposed that the scope of the share trading obligation (STO) shall be limited to EAA ISINs (i.e. shares that are admitted to trading on an EEA regulated market), but with trading on third-country venues allowed where the trade is in the local currency. It is also proposed to establish an EU "official list" of shares subject to the STO. In respect of the derivative trading obligation (DTO), it is proposed to align this with the requirements under the Regulation on over the counter (OTC) derivatives, central counterparties (CCPs) and trade repositories Regulation (EU) No 648/2012 (European Market Infrastructure Regulation or EMIR) including by: (i) exempting small financial counterparties from scope and (ii) allowing for the possibility of the suspension of the DTO where the clearing obligation has been temporarily suspended; and (iii) allowing for the possibility of the suspension of 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 amendments proposed by the draft Directive relate to the draft Regulation proposals summarised above, including requirements on Member States to:

  • Oblige regulated markets, investment firms and market operators to have in place arrangements to ensure they meet data quality standards set out in MiFIR; and
  • Impose sanctions for infringements of certain new provisions in MiFIR, including mandatory contributions to CTPs.

The Council of the EU and the European Parliament will now consider the legislative proposals.

A copy of the draft Regulation can be accessed here and the draft Directive can be accessed here.

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