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Financial Institutions Advisory & Financial Regulatory, Columns

Oct 19, 2020

ESMA’s Post-Brexit Regime for UK Investment Firms Revisited—‘Equivalence’ or Direct Regulation?

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ESMA’S POST-BREXIT REGIME FOR UK INVESTMENT FIRMS REVISITED—‘EQUIVALENCE’ OR DIRECT REGULATION?

The European Union’s financial regulatory regime for third-country access in many sectors relies on a framework of “equivalence,” whereby institutions based in approved non-EU countries with similar standards may have varying degrees of access to EU markets or investors, depending on the extent to which their laws and regulations achieve equivalent outcomes to those of EU law. The EU’s equivalence regimes have been given increased prominence as a result of Brexit, since they are the means by which EU investors can access Europe’s largest financial centre, London, and vice versa.

The EU’s Markets in Financial Instruments Directive (“MiFID II Directive”) and Markets in Financial Instruments Regulation (“MiFIR”) (collectively, “MiFID II”), which became effective in January 2018, introduced an equivalence regime for the first time for “investment firms,” which includes investment advisers, brokers, trading facilities, dealers, portfolio managers and other non-bank, non-insurance financial institutions. To date, no countries have been approved as equivalent under this regime.

Under MiFID II, third-country investment firms located in an “equivalent” jurisdiction that want to provide services to “wholesale,” i.e., non-retail, clients (defined in EU law as “eligible counterparties” and “per se professional clients”)[1] in the EU can apply for a single registration with the European Securities and Markets Authority. This registration would be valid across all member states as a single point of entry. In principle, it is more straightforward than its alternative—obtaining licences or navigating the only partially harmonised “regulatory perimeter” of 27 countries. Firms wishing to provide services to retail clients in a particular member state can establish and obtain national authorisation of an EU branch.[2] Aside from these options, the reverse solicitation regime also allows third-country firms to access EU customers. We have discussed that regime in detail in previous client notes.[3]

The MiFID II provisions on access to the EU markets by third-country firms were amended in early December 2019[4] to:

  • Introduce a new condition for access for third-country firms relying on equivalence, requiring a firm to have arrangements in place to report information annually to ESMA;
  • Require registered third-country investment firms to report information annually to ESMA;
  • Provide for a more granular equivalence assessment where the firms in a third country are considered to be of systemic importance to the EU;
  • Give the Commission powers to attach operational conditions to equivalence decisions; and
  • Mandate ESMA to monitor the supervisory and regulatory regimes of equivalent third countries to ensure ongoing equivalence.

The changes to the equivalence and registration provisions will apply from 26 June 2021.

Following its consultation[5] earlier this year, which we commented upon in our previous client note, [6] ESMA has published final draft Regulatory Technical Standards and Implementing Technical Standards[7] that set out how registration under the revised equivalence regime for investment firms will operate. In the final draft RTS, ESMA has amended the text to clarify that much of the information required under the regime will only relate to the third-country firm’s operations and activities in the EU and not globally. However, many of the requirements arguably go beyond the mandate that ESMA is given in MiFIR, which aims to facilitate ESMA’s obligation to monitor third-country equivalencies as opposed to granting it powers to supervise third-country firms. Much of the information included in the RTS is that which could be expected to be provided through the cooperation arrangements established between ESMA and third-country regulators. In addition, ESMA has not considered whether a more proportionate reporting regime would be applicable to smaller, less complex firms that do not present the same level of risk as the large investment firms.

U.K. firms will lose their EU passporting rights at the end of the transition period (i.e., 31 December 2020). The EU and U.K. agreed to complete their equivalence assessments for each other by June 2020. [8] No equivalence has been granted to the U.K. by the EU, except for the temporary equivalence and recognition for U.K. CCPs. [9] Despite the equivalence framework operating independently of the EU-U.K. trade negotiations, it is expected that if a deal is concluded, the equivalencies would follow quickly. U.K. investment firms will either need to register under and comply with this new regime, if equivalence is granted, or explore other options such as holding up to 27 separate national licences or relying on reverse solicitation (which is a mechanism whereby EU customers reach out to firms of their own accord, and dispense with the application of EU regulation). Notably, the MiFID II regime is far more onerous than any other EU equivalence regime in terms of the application process and compliance requirements, raising questions as to whether it will be a practical option, especially for smaller firms. Unlike the new regime for third-country CCPs brought in under EMIR 2.2, there is no ability for third-country investment firms to apply for a comparable compliance assessment. [10] Whether the EU will incorporate comparable compliance into other equivalence regimes remains to be seen.

In this client note, we discuss ESMA’s registration regime for third-country firms providing investment services cross-border to eligible wholesale clients and briefly describe certain features of the new EU equivalence regime for third-country investment firms. We also highlight the implications for ongoing compliance for registered third-country investment firms.

ESMA has submitted the final draft RTS to the European Commission for adoption. It is not unheard of for the Commission to object to draft RTS and it will be interesting to see what action the Commission takes, if any, to mitigate ESMA’s pursuit of enhanced powers over third-country investment firms.

Changes to the ESMA Registration Requirements

Under MiFIR, third-country investment firms wishing to provide services to wholesale EU clients can register with ESMA if:

  • The European Commission has adopted a decision as to the equivalence of the supervisory and regulatory regime of the third country where the firm is established;
  • The firm is authorised in its home jurisdiction to provide the relevant investment services or activities that it seeks to carry out in the EU; and
  • Effective cooperation arrangements are established between ESMA and the relevant third-country regulator.

A new condition adds a requirement for a firm to have established the arrangements and procedures to report the information that registered firms will be required to report annually to ESMA. The introduction of this requirement is indicative of the EU’s move towards imposing more obligations on market participants relying on equivalence for access to the EU markets. MiFIR prescribes the annual information to be reported, which includes:

  • The scale and scope of the firm’s EU services and activities;
  • The turnover and aggregated value of the firm’s assets arising from such activities;
  • The risk management policies the firm applies when conducting such activities;
  • Information on whether investor protection arrangements have been made, together with a detailed description of such arrangements;
  • For firms that “deal on own account” (i.e., trade against proprietary capital), their monthly minimum, average and maximum exposure to EU counterparties;
  • For firms that underwrite or place financial instruments, the total value of EU counterparty instruments that they have underwritten or placed over the previous 12 months;
  • The firm’s governance arrangements; and
  • Any other information necessary to enable ESMA (or a relevant Member State national regulator) to carry out its tasks.

Registered third-country firms will also be obliged to keep, at the disposal of ESMA, data relating to all their orders and transactions in the EU in financial instruments, whether on their own account or on behalf of a client, for a period of five years. ESMA is entitled to access this data at the request of a Member State national regulator and to make it available to the requesting regulator.

ESMA’s final draft RTS require a third-country firm applying for registration to provide, at that time, information similar to what it will be required to report annually once registered. Much more information will be required than is required under the pre-existing MiFID II RTS,[11] which requires information about an applicant firm’s identity, the activities it is authorised to carry out and those for which it is seeking registration. The information required to be provided to ESMA by an applicant firm comprises:

  • Granular details on the firm’s governance arrangements including members of the management body and individuals holding key functions;
  • Comprehensive details on the firm’s investor protection arrangements, such as, where appropriate,[12] those relating to suitability and appropriateness of investor advice, best execution, product governance, conflicts of interest, complaints handling and client asset rules;
  • Details on the firm’s marketing strategy;
  • Information on the firm’s outsourcing arrangements;
  • Information on the structure and organisation of the firm’s compliance, audit and risk management functions; and
  • Any information that the third-country firm considers to be relevant to ESMA.

For many of these information requirements, ESMA is also mandating firms to provide an explanation of potential issues that may arise due to the cross-border nature of the services provided or activities performed and how the third-country firm plans to address those issues, including organisational and technological aspects.

ESMA is also required to stipulate further the details that registered third-country firms must provide on an annual basis. We have set out ESMA’s draft annual reporting requirements in the annex below, mapped against the top-level requirements provided for in MiFIR. Some of ESMA’s requirements arguably go beyond its remit, especially those requiring a firm to provide information on its global activities and global client and counterparty numbers.

Furthermore, in contrast to the pre-existing MiFIR provisions that differentiate between the level of risk that firms may present, ESMA is adopting a one-size-fits all approach to the annual reporting requirements, forcing “less risky” firms to cope with overly burdensome requirements and potentially overloading ESMA’s own resources.[13]

Implications for Ongoing Compliance

Product Intervention Measures

Once registered, a third-country firm will be subject to ongoing oversight by ESMA, including the annual reporting requirements. This will lead to substantial compliance and IT costs, both at registration and on an ongoing basis that may or may not be offset by the removal of the need for a firm to monitor the different requirements across EU member states. The offset is less likely where conditions attach to equivalence or a limited equivalence is granted, meaning that firms will still need to monitor individual member states’ laws for those activities carried out under the national regimes (see the discussion on Transitional Provisions below).

ESMA will have the power to withdraw a firm’s registration or to prohibit temporarily or restrict its activities if the firm fails to comply with the reporting requirements. ESMA may take the same actions if a registered third-country firm fails to cooperate in an investigation or on-site inspection.

Third-country firms that want to provide services or that already do so will also become subject to the EU’s product governance rules from 26 June 2021. These give ESMA powers to prohibit temporarily or restrict the marketing, distribution or sale of financial instruments or other types of financial activity. While ESMA can only adopt temporary measures, national regulators in EU member states can adopt permanent measures. National measures are already in place in numerous EU member states to restrict the marketing, distribution or sale of CfDs to retail clients and to ban the marketing, distribution or sale of binary options to retail clients. Similarly, the U.K. Financial Conduct Authority is banning, from 6 January 2021, the marketing, distribution or sale of derivatives referencing crypto-assets.[14] Firms that only provide services to professional clients and eligible counterparties are not affected by these measures. However, the powers to implement these measures are not restricted to purely retail clients, and third-country firms will need to monitor the situation. If any national measures were brought in that applied to products for clients other than retail clients, firms will need to analyse the differences in requirements to ensure compliance with each member state’s rules. ESMA has recommended that the Commission provides clarification on how the product intervention regime should operate for all firms providing services on a cross-border basis.[15]

Changes to the Equivalence Regime

For a third-country firm to be registered with ESMA, certain arrangements must be put in place and the European Commission must adopt an equivalence decision regarding the supervisory and regulatory regime of the third country in which the firm is established. As mentioned, the Commission has not adopted any MiFIR equivalence decisions for third-country investment firms.

The changes to the equivalence regime purportedly aim to address the EU’s concern about how it can ensure continued financial stability and investor protection while also granting access to third-country firms. Under the revised regime, where the European Commission identifies that the activities of a third-country investment firm are of systemic importance to the EU, a more detailed and granular assessment will be undertaken of the third-country’s regime as well as an analysis of the similarity of the supervisory approach taken by the third-country’s regulators to that of the EU’s approach. This will likely be the case for the U.K., assuming it is granted equivalence in due course.[16]

 In addition, the Commission will be able to “attach operational conditions to equivalence decisions,”[17] underlining the EU’s inclination to limit the services and activities that large, complex third-country firms can provide in the EU. These conditions aim to ensure that ESMA and national regulators are able to prevent regulatory arbitrage and can ensure that the third-country firms comply with requirements that seek the same outcome as the EU’s post-trade disclosure requirements,[18] transaction reporting requirements[19] and trading obligation for shares and derivatives.[20]

Transitional Provisions

Since the equivalence regime under MiFIR is not yet triggered, third-country firms have been able to provide services to eligible counterparties and per se professional clients under the various national member state rules (or by using reverse solicitation). A transitional provision provides that once an equivalence decision is made, these firms would be able to continue to operate under the applicable national regimes for a further three years. Helpfully, the recent changes to MiFIR also clarify that Member States may allow third-country firms to provide services in their jurisdictions under the national regime in the absence of an equivalence decision, or, if there has been a decision, when it is no longer in effect. In addition, a firm may continue providing any services under the relevant national regime where these are not covered by an equivalence decision.

Concluding Remarks

U.K. firms (and firms in other non-EU countries) will need to assess whether an ESMA registration is appropriate for their business model and the onerous registration requirements as well as the extraordinary ongoing compliance burden. Many firms may opt for another way to access the EU markets, put off by the in-depth information requirements, compliance burden and business restrictions that would result from effectively being subjected to direct supervision by ESMA.

For larger U.K. firms with a large EU client base and substantial compliance “machine,” faced with the prospect of 27 cross-border licenses after Brexit, probably even this onerous regime will remain a least worst option. However, for smaller firms, the alternatives of country-by-country licenses or reverse solicitation are likely to remain somewhat attractive.

Annex

ESMA’S PROPOSED REQUIREMENTS

REVISED MIFIR, ARTICLE 46 – ANNUAL REPORTING REQUIREMENTS AFTER REGISTRATION

ESMA FINAL DRAFT RTS – REGISTRATION APPLICATION INFORMATION REQUIREMENTS

ESMA FINAL DRAFT RTS – ANNUAL REPORTING REQUIREMENTS AFTER REGISTRATION

 

The name and contact details of the person in charge of submitting the application.

The reporting period and name and contact details of the person in charge of submitting the information.

 

Information identifying the third-country firm, including legal form.

Competent authorities of the third country that are responsible for the supervision of the third-country firm and proof of authorisation.

Any change to the information previously provided.

 

Information on the investment services, investment activities and ancillary services (as defined in MiFID II) the third-country firm is authorised to provide in the third country where it is established, accompanied by a written declaration from the third-country national regulators confirming authorisation for those activities.

The financial instruments in relation to which the firm may provide the services and activities.

Any change to the information previously provided.

  1. The scale and scope of the services and activities carried out by the firms in the Union, including the geographical distribution across Member States.

d. The turnover and the aggregated value of the assets corresponding to the services and activities referred to in point (a).

Information on the investment services, investment activities and ancillary services to be provided in the Union, together with the expected numbers of clients and counterparties and the expected annual turnover and aggregated value of the assets corresponding to the services and activities to be provided in the EU.

For each Member State where the third-country firm provides investment services, investment activities or ancillary services, the list of investment services, investment activities and ancillary services provided by the third-country firm, together with the estimated number of clients, annual turnover and aggregated value of the assets corresponding to the services and activities provided in each member state.

 Information only required if there is a material change to that provided previously.

The estimated total number of clients and counterparties of the third-country firm globally.

Annual turnover of the third-country firm globally.

The member states in which the firm intends to provide services and activities, with information on activities, services, clients, turnover and assets broken down for each member state.

 

 

Information on how the activities of the third-country firm in the Union will contribute to the strategy of the third-country firm or, where relevant, its group, including the reasoning behind the choice of the third-country firm or of its group (if relevant) to provide services in the Union on a cross-border basis rather than to establish branches or subsidiaries.

Any material change to the information previously provided.

 

Information on the planned marketing strategy of the third-country firm in the Union, including: (a) a detailed description of the marketing strategy of the third-country firm in the Union, including its geographical scope and details about the marketing means the third-country firm is using or plans to use; and (b) the list of websites it intends to use.

 

Information on the marketing activities of the third-country firm in the EU, including, at least: (a) a description of the marketing strategy, including its geographical scope and details about the marketing means the third-country firm is using or plans to use; (b) the list of trading names used by the third-country firm in the EU together with the Member States in which they will be used, the investment services and activities and financial instruments in respect of which they will be used as well as the categories of clients in relation to which the third-country firm will use them; (c) for any agents or similar used by the third-country firm in the EU, the name of the individual or entity; and (d) the website(s) that will be used by the third-country firm in the Union, together with the relevant weblink(s).

 

The trading or commercial name the firm will use in the EU, including in which states it will be used, for which services, activities and ancillary activities and the type of clients.

 

 

The language the firm intends to use in the EU, including for which types of clients and for which activities.

Any material change to the information previously provided.

 

An explanation of potential issues that may arise due to the cross-border nature of the services provided or

activities performed and how the third-country firm plans to address those issues, including organisational and technological aspects.

 

 

Details on the arrangements of the third-country firm to comply with its information requirements under Article 46 of MiFIR.

Any material change to the information previously provided.

(b) For firms dealing on own account (point (3) of Section A of Annex I MiFID II), their monthly minimum, average and maximum exposure to EU counterparties.

 

For the EU overall and for each member state in which the firm deals on own account, information on the exposure of the third-country firm to EU counterparties, including the amount of the monthly average exposure and monthly minimum and maximum exposures.

(c) For firms providing underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis services (point (6) of Section A of Annex I to MiFID II), the total value of financial instruments originating from EU counterparties underwritten or placed on a firm commitment basis over the previous 12 months.

 

For the EU overall and for each member state where the firm provides underwriting and/or placing on a firm commitment basis, the total value of financial instruments originating from

EU counterparties underwritten or placed on a firm commitment basis during the reporting period.

(e) Whether investor protection arrangements have been taken, and a detailed description thereof.

Description of the investor protection arrangements of the third-country firm, including:

  1. where the third-country firm provides portfolio management and investment advice services (points (4) or (5) of Section a of Annex I of MiFID II), the arrangements of the third-country firm to ensure that such investment services and activities provided to its clients are suitable, including the category of clients and differences in assessment, if appropriate, the information collected from clients for the assessments and the arrangements in place to ensure that the information is reliable, proportionate and up to date, a description of the suitability assessment process and the record-keeping measures;
  1. where the third-country firm executes orders for its clients, the arrangements of the third-country firm to execute such orders on terms most favourable to the client, including a description of the processes and/or procedures for achieving the best result, the trading venues used and the monitoring procedures of the firm;
  2. where the third-country firm executes orders on behalf of clients, the arrangements of the third-country firm for the prompt, fair and expeditious execution of client orders, including a description of the procedures and arrangements which provide for the prompt, fair and expeditious execution of client orders, relative to other client orders or the trading interests of the firm;
  3. where the third-country firm manufactures financial instruments for sale to clients, the product governance arrangements of the third-country firm, including the arrangements of the third-country firm to identify target investors and define the distribution strategy;
  4. the arrangements of the third-country firm to identify, prevent and manage conflicts of interest, including those arising from the remuneration policy of persons involved in the provision of those services;
  5. the arrangements of the third-country firm to handle complaints, including a list of competent courts (in case of litigation) referred to in any contractual arrangements between the firm and clients in the EU and any alternative dispute resolution entities competent to deal with disputes;
  6. the membership of the third-country firm in an investor compensation scheme, including whether EU clients and counterparties of the third-country firm will be eligible to such scheme, its scope, a description of the eligibility conditions and the amounts and financial instruments covered by the scheme;
  7. the arrangements of the third-country firm to protect and manage the funds and assets of its clients, in particular, where a custodian is used;
  8. any other arrangements that the third-country firm may deem relevant to the provision of investment services and performance of its investment activities in the EU in an honest, fair and professional manner that promotes the interests of clients.

For the EU overall and for each member state where the third-country firm provides portfolio management and investment advice services (points (4) or (5) of Section a of Annex I of MiFID II):

  1. the amount of the total value of assets under management for EU clients at the end of the reporting period and the amount of the average value of assets under management for EU clients over the reporting period; and
  2. the amount of the total value of the assets in relation to which that service has been provided to EU clients at the end of the reporting period and the amount of the average value of the assets over the reporting period.

For the EU overall and for each member state where the third-country firm provides safekeeping and administration of financial instruments for the account of clients (point (1) of Section B of Annex I to MiFID II) or is holding client funds, information on the value of the assets (including cash) held by the third-country firm for EU clients, including the amount of the average value of the assets (including cash) held by the third-country firm for EU clients over the reporting period and at the end of the reporting period.

For the EU overall and for each member state where the third-country firm provides services and activities, information about complaints received by the third-country firm in relation to the services and activities it provides in the EU, including the number of complaints, the five most frequent topics and the five financial instruments generating the most complaints.

For suitability, best execution, conflicts of interest, product governance, complaints handling, membership of an investor compensation scheme and safeguarding of a client funds and assets, the firm need only provide information where there is any material change to the information previously provided.

(f) The risk management policy and arrangements applied by the firm to the carrying out of the services and activities referred to in point (a).

Information on the outsourcing arrangements of the third-country firm, affecting the operations of the third-country firm in the EU, including a description of any critical or important operation that is outsourced.

Information on the structure, organisation of and monitoring by the compliance function (or equivalent) of the third-country firm insofar as it relates to the EU operations of the firm.

Information on the structure, organisation of and monitoring by the internal audit function (or equivalent) of the third-country firm insofar as it relates to the EU operations of the firm.

Information on the structure, organisation of and monitoring by the risk management function (or equivalent) of the third-country firm insofar as it relates to the EU operations of the firm.

Any material change to information previously provided.

Whether there has been any material change and relevant developments in the regulatory requirements applicable to the third-country firm during the reporting period and which impacts the investor protection and the prudential arrangements of the third-country firm.

In relation to the firm’s EU operations, a summary of the following actions undertaken by the compliance function and internal audit function:

  1. on-site inspections or desk-based reviews performed;
  2. the planned monitoring activities for the subsequent review of EU operations; and
  3. the major findings taken or to be taken to address identified failures or risks of failures of the third-country firm.

In relation to a firm’s EU operations, a description of:

  1. measures taken or to be taken to ensure compliance with regulatory developments;
  2. the reaction of the firm to complaints received by it in the EU and any pay-out based on the complaint; and
  3. any deviation by senior management from important recommendations or assessments issued by the compliance function.

In relation to the firm’s EU operations, a summary of:

  1. the firm’s risk management policy, including how its EU operations fit into such policy or are considered;
  2. the risk mapping assessment for the reporting period;
  3. the main techniques and tools used to measure and manage the risks to which the firm is exposed;
  4. the planned risk management activities for the subsequent review of its EU operations;
  5. major findings of the risk management function; and
  6. the actions taken or to be taken to address failures or risks of failures identified by the risk management function.

(g) The governance arrangements, including key function holders for the activities of the firm in the Union.

Description of the governance arrangements of the third-country firm, including:

i. the members of the management body of the third-country firm and any other persons who effectively direct the business of the third-country firm in the EU;

ii. information on the key function holders for the activities of the third-country firm in the EU with, notably, the CFO and CEO when they are not members of the management body, the heads of internal control functions responsible for the oversight of the activities of the third-country firm in the Union and the individuals responsible for the day-to-day operations of the third-country firm in the Union; and

iii. the reporting lines between the key function holders and the senior management and management body of the third-country firm.

Any change to the information previously provided.

(h) Any other information necessary to enable ESMA or the competent authorities to carry out their tasks in accordance with this Regulation.

Any other information that the third-country firm considers relevant to ESMA.

Any material change to information previously provided.

Any additional information.

 

Information on the arrangements (including IT arrangements) set up by the third-country firm for algorithmic trading, for high frequency trading (HFT) and for direct electronic access (DEA).

Any material change to information previously provided.

 

 

Whether the firm has established the necessary arrangements and procedures to comply with the annual reporting requirements and a brief description of those arrangements.

 

Footnotes

[1]  Eligible counterparties are banks, investment firms, insurers, asset managers, funds, other institutional investors, non-EU equivalent regulated entities and large undertakings meeting a certain size threshold (not yet specified) consenting to be treated as an ECP.

 Per se professional clients are: banks, investment firms, insurers, asset managers, funds, commodity dealers, other institutional investors and non-EU equivalent regulated entities; national and regional governments, central banks, bodies managing public debts and international and supranational institutions; large companies (whose size meets any two of: balance sheet total; EUR 20 million, net turnover; EUR 40 million and own funds; EUR 2 million) and other institutional investors whose main activity is to invest in financial instruments including those that mostly securitise assets and finance transactions.

Elective professional clients (“opt-up”) are public sector bodies, local public authorities, municipalities and private individual investors who may opt to be treated as a professional client either generally or for a particular service or transaction. The investment firm will need to assess the expertise, experience and knowledge of its client, including whether the client satisfies at least two of the following: (i) the client has traded significantly ten times on average in the last four quarters; (ii) the client has cash and investments exceeding EUR 0.5 million; and (iii) the client has been a financial services professional for over a year.

Retail clients are clients that are neither professional clients nor ECPs.
[2]  For details of the existing MiFID II regime, you may like to see our client note, “MiFID II: Access to EU Markets for Third Country Investment Firms,” 9 May 2016.
[3]  For details of the reverse solicitation regime, you may like see our client note, “On the Existence of a Pan-European Reverse Solicitation Regime under MiFID II, and its Importance on a ‘Hard’ Brexit,” 19 February 2019.
[4]  The changes were made in the new Investment Firm Directive (Directive (EU) 2019/2034) and Investment Firm Regulation (Regulation (EU) 2019/2033).
[5]  ESMA Consultation Paper, “Draft technical standards on the provision of investment services and activities in the Union by third-country firms under MiFID II and MiFIR,” 31 January 2020, ESMA35-43-2131.
[6]  “ESMA’s Post-Brexit Regime for UK Investment Firms—‘Equivalence’ or Direct Regulation?” 30 March 2020.
[7]  ESMA Final Report, Draft technical standards on the provision of investment services and activities in the Union by third-country firms under MiFID II and MiFIR, 28 September 2020, ESMA35-43-2424.
[8]  The revised Withdrawal Agreement and Political Declaration were agreed in October 2019. The Withdrawal Agreement is legally binding and has been transposed into EU and U.K. law—Council Decision (EU) 2020/135 of 30 January 2020 and the European Union (Withdrawal Agreement) Act 2020. The EU has published the Political Declaration in the Official Journal of the European Union (2020/C 34/01).
[9]  You may like to see our post “EU Grants Temporary Recognition to UK CCPs for End Of Brexit Transition Period,” 28 September 2020.
[10]  Details of the EMIR 2.2 comparable assessment are available on our blog, “EMIR 2.2 Secondary Legislation Published,” 21 September 2020.
[11]  Commission Delegated Regulation (EU) 2016/2022.
[12]  There exemptions from certain of these investor protection requirements for firms providing services to eligible counterparties.
[13]  MiFIR includes a provision to look at ESMA’s resourcing for oversight of third-country firms, including the potential to require third-country firms to pay fees. The report is due at the end of 2021.
[14]  You may like to see our post, “UK Conduct Regulator Bans Sale to Retail Clients of Derivatives Referencing Crypto-Assets From January 2021,” 6 October 2020.
[15]  You may like to see our blog on ESMA’s recommendations for the product governance regime under the MiFID 2.1 review.
[16]  The Commission is empowered to adopt legislation on the circumstances in which the scale and scope of the services provided and activities performed by third-country firms are likely to be of systemic importance. There has not yet been any indication from the Commission as to what that legislation might stipulate.
[17]  Art 47(1a), MiFIR, as amended by Art 63(5), Investment Firm Regulation (Regulation (EU) 2019/2033).
[18]  The post-trade transparency requirements are in Articles 20 and 21, MiFIR.
[19]  The transaction reporting requirements are in Article 26, MiFIR. This would only apply where that information cannot be obtained directly through a Memorandum of Understanding with the third-country regulator.
[20] The trading obligation for shares and derivatives are in Articles 23 and 28, MiFIR, respectively. The Commission must also assess whether the third-country’s framework provides criteria for designating trading venues as eligible for compliance with the trading obligation and which have a similar effect to those in MiFID and MiFIR.

Authors and Contributors

Barnabas Reynolds

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5528

+44 20 7655 5528

London

Thomas Donegan

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5566

+44 20 7655 5566

London

Sandy Collins

Professional Support Lawyer

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5601

+44 20 7655 5601

London