Since our last newsletter, ESMA updated its Q&A on the implementation of investor protection topics under the Market in Financial Instruments Directive 2014/65/EU of 15 May 2014 ("MiFID II") and on the Markets in Financial Instruments Regulation 600/2014 of 15 May 2014 ("MiFIR"): Q&A on MiFID II and MiFIR investor protection and intermediaries (the “Q&A”).
This updated Q&A includes an entire new section on “MiFID practices for firms selling financial instruments subject to the Bank Recovery and Resolution Directive (“BRRD”) regime”.
Directive 2014/59/EU as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms established a common approach within the EU for the recovery and resolution of banks and investment firms. Directive (EU) 2019/879 of 20 May 2019 (the “BRRD 2”) amends the BRRD and will enter into force on 28 December 2020, but Member States may apply some derogations.
Article 44a of the BRRD 2 has introduced new requirements for the ‘Selling of subordinated eligible liabilities (SELs) to retail clients’. The new section of the Q&A provides practical guidance on the application of Article 44a of the BRRD 2 and the relevant MiFID II requirements to which Article 44a cross-refers.
More specifically, the updated Q&A provides information on the following topics:
- Sales of subordinated eligible liabilities and the assessment of suitability;
- Whether Article 44a of BRRD 2 should be applied only if there is an active offering on the part of the firm;
- Information to be collected from clients in order to comply with Article 44a(1) and 44a(2) of BRRD 2;
- Calculation of 10% threshold referred to in Article 44a(2)(a) of BRRD 2;
- What happens if a transaction relating to subordinated eligible liabilities is deemed unsuitable by the firm, but the retail client wishes to proceed anyway;
- Monitoring of 10% threshold referred to in Article 44a(2)(a) of BRRD 2.