On 29 May 2019, ESMA updated its Q&A on the Markets in Financial Instruments Directive 2014/65/EU of 15 May 2014 (“MiFID II”) and on the markets in Financial Instruments Regulation No. 600/2014 of 15 May 2014 (“MiFIR”), and more specifically, its Q&A on investor protection and intermediaries (the “ESMA Investor Protection Q&A”);
Furthermore, on 21 May 2019, the CSSF has updated its Q&A on MiFID II and MiFIR to cover four new questions relating to transaction reporting data samples.
We will only focus here on the updates to the ESMA Investor Protection Q&A.
Best execution
Article 21 of Directive 2004/39/EC 21 April 2004 on markets in financial instruments (“MiFID I”) required firms "to take all reasonable steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order". On the other hand, Article 27 of MiFID II requires firms "to take all sufficient steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order".
ESMA has confirmed that firms and competent authorities should understand “all sufficient steps” to be a higher bar for compliance than “all reasonable steps”. ESMA goes on to provide some practical guidance to firms to achieve this through, for example, the monitoring of quality and appropriateness of their execution arrangements and policies on an ex ante and ex post basis to identify where areas need improvement.
Information on costs and charges
Four new questions and answers have been added to the section of the ESMA Investor Protection Q&A dealing with best execution.
ESMA has:-
- clarified when it is necessary to provide ex-ante information about costs and charges in case of clients’ sell orders;
- provided helpful guidance on how to disclose cost information (in good time) to a client who places an order via telephone;
- confirmed that firms may use an assumed investment amount in ex-ante costs and charges disclosures, notwithstanding if the services or products have linear or non-linear charging structures, provided the assumed investment amount reflects where, in the charging structure, the specific transaction is assumed to stand;
- confirmed that, in ex-ante costs and charges disclosures, firms are not allowed disclose the relevant costs and charges that would be incurred by a client by way of a range or as a maximum amount/percentage.
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