Since our article on the questions and answers of the European Securities and Markets Authority (“ESMA”) regarding Markets in Financial Instruments Directive (recast) – Directive 2014/65/EU (“MiFID II”) and Markets in Financial Instruments Regulation – Regulation 600/2014 (“MiFIR”) in our May 2017 Newsletter, the following have been updated:
- Q&A on MiFID II and MiFIR investor protection and intermediaries topics;
- Q&A on MiFID II and MiFIR market structures topics;
- Q&A on MiFID II and MiFIR transparency topic;
- Q&A on MiFID II and MiFIR commodity derivatives topics; and
- Q&A on MiFIR data reporting.
We will focus here on just a few of the updates to the questions and answers on MiFID II and MiFIR investor protection and intermediaries topics (hereafter, the “Q&A”).
As regards the recording of telephone conversations and electronic communications, ESMA has clarified that the record-keeping requirements set out in Article 16(7) of MiFID II should be construed broadly such that (i) the requirement applies separately to situations where firms receive and transmit a client order, irrespective of whether the execution and transmission of the order is allowed on that particular channel and (ii) conversations and communications that are “intended to result in” the provision of services (1), (2) and (3) included in Annex I, Section A of MiFID II, must be recorded.
ESMA has confirmed that the order record-keeping requirement under Article 16(6) of MiFID II (and further specified in Article 9 of the Commission Delegated Regulation (EU) 2017/1943 of July 14th 2016 supplementing MiFID II (the “MiFID II Delegated Regulation”) does not provide for any exclusions and therefore applies to securities financing transactions.
Section 10 of the Q&A makes clear that shares in non-UCITs collective investment undertakings cannot, under any circumstances, be reassessed under the criteria set out in Article 57 of the MiFID II Delegated Regulation such that they could be potentially deemed non-complex financial instruments for the purposes of the appropriateness test.
ESMA has also confirmed that investment firms are only obliged to notify information regarding client categorisation to new clients and clients whose categorisation has changed under MiFID II from the categorisation those clients had under MiFID I (Markets in Financial Instruments Directive – Directive 2004/39/EC).
As regards inducements, ESMA has clarified in the Q&A (i) that the inducement restrictions in Article 24(9) of MiFID II apply also to the payments made, or benefits provided to, third parties by investment firms in connection with the provision of investment advice on an independent basis or of portfolio management and (ii) that any fee, commission or monetary benefit should be considered as a liability of the investment firm after it has been received by it as an inducement, and prior to it being transferred to the client.
Finally, ESMA has provided a number of clarifications on (i) the best execution requirements under RTS 27 and 28 of MiFID II, (ii) the post-sale reporting obligations under Article 62 of the MiFID II Delegated Regulation, and (iii) the costs and charges information requirements under Article 24 of MiFID II and Article 50 of the MiFID II Delegated Regulation.