On March 23rd 2018, the European Securities and Markets Authority (“ESMA”) updated a number of its Q&A regarding the Markets in Financial Instruments Directive (recast) – Directive 2014/65/EU (“MiFID II”) and Markets in Financial Instruments Regulation – Regulation 600/2014 (“MiFIR”), specifically:
- Q&A on investor protection and intermediaries topics;
- Q&A on transparency topics;
- Q&A on commodity derivatives topics; and
- Q&A on markets structures topics.
We will focus here on just a few of the updates to the Q&A on investor protection and intermediaries topics (hereafter, the “Q&A”).
With respect to inducements, ESMA has confirmed how investment firms providing the investment service of portfolio management should treat inducements received after January 3rd 2018 with regards to financial instruments in which the firm has invested on behalf of the client before that date. In short, ESMA has confirmed that only ongoing inducements accrued until January 2nd 2018 can be received (subject to compliance with the requirements of Directive 2004/39/EC on markets in financial instruments (“MiFID I”).
On the topic of research related inducements, ESMA has provided some clarification (i) on whether macro-economic analysis can be considered research that can be paid for from a research payment account and client research charges under Article 13(1)(b) of the Commission Delegated Directive (EU) 2017/593 supplementing MiFID II (the “MiFID II Delegated Directive”) and (ii) on how research related to fixed income, currencies or commodities should be treated for the purposes of the MiFID II inducements restriction for firms providing portfolio management or independent investment advice.
With respect to additional reporting obligations for portfolio management described in Article 62(1) of the Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU (the “MiFID II Delegated Regulation”), ESMA has confirmed that the investment firm is not required to report to the client each time the overall value of the portfolio exceeds a threshold if no new threshold is exceeded. With respect to the additional reporting obligations in Article 62(2) of the MiFID II Delegated Regulation on particular investment firms (i.e. those that hold a retail client account that includes positions in leveraged financial instruments or contingent liability transactions) to inform the client where the initial value of each instrument depreciates/multiplies, the meaning of the phrase “hold a retail client account” has been clarified. ESMA confirms it could be understood as providing the ancillary service of safekeeping and administration of financial instruments for the account of retail clients or holding an account intended for registering clients transactions on financial instruments (in the context of an investment service rendered to a retail client).
Finally, ESMA has clarified the interpretation of the term “ongoing relationship” within the MiFID II Directive and the MiFID II Delegated Regulation, noting that it should be understood to have its ordinary meaning, should be interpreted consistently across the legislation and should apply to client relationships that are continuing or have been so during the preceding year.
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