On 31 January 2020, the European Securities and Markets Authority (ESMA) launched a consultation on draft technical standards in respect to the provision of investment services and activities in the European Union (EU) by third-country firms under Regulation (EU) No 600/2014 (MiFIR) and Directive 2014/65/EU (MiFID II). Third-country firms are firms incorporated outside the EU.
The new Investment Firms Regulation (EU) No 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) introduced changes to MiFIR and MiFID II regimes for the provision of investment services and activities in the EU by third-country firms.
These changes include new reporting requirements from third-country firms to ESMA on an annual basis in accordance with Article 46 of MiFIR, and also grants ESMA the power to ask third-country firms on the ESMA register to provide data relating to all orders and all transactions in the EU, whether on own account or on behalf of a client, for a period of five years.
The opening of the consultation occurred on the eve of the exit of the UK from the EU but the change will apply to all third-country firms. The European Commission will likely be called upon to make an equivalence decision in respect to the UK’s laws on the provision of investment services and activities. UK authorised investment firms may, subject to such an equivalence decision, become subject to the proposed reporting requirements to ESMA should they provide investment activities or services in the EU after the end of the transitional period.
Third-Country Firms Regime
Article 46 of MiFIR allows so called third-country firms to provide investment services and activities to eligible counterparties and per se professional clients if they are registered in the register of third-country firms held by ESMA. In the absence of an equivalence decision by the European Commission, this MiFIR third-country regime has not, so far, been triggered.
Article 39 of MiFID II provides for the provision of investment services and activities by third-country firms to retail clients and professional clients through a branch established in a member state of the EU. The branch of a third-country firm authorised under Article 39 remains under the exclusive supervisory responsibility of the relevant competent authority in the member state where the branch has been authorised.
ESMA Proposed Technical Standards
ESMA is mandated by the IFR and the IFD to develop draft Technical Standards setting out the functioning of this new regime for third-country investment firms. The draft Technical Standards will be submitted to the European Commission for the adoption of the final legal text.
ESMA is also mandated to prepare draft technical standards in relation to the revised third-country regime under MiFIR and MiFID II.
In particular, in accordance with Article 46(7) and (8) of MiFIR, ESMA will develop:
- draft regulatory technical standards to specify the information that third-country firms must provide to ESMA for the registration in the ESMA register of third-country firms and for the information that third-country firms have to report annually to ESMA;
- draft implementing technical standards to specify the format in which the information for the registration of the firm and for the annual report to ESMA should be submitted.
While branches of third-country firms authorised under Article 39 of MiFID II remain under the supervisory responsibility of the competent authorities of the Member State where they have been authorised, the IFD amends MiFID II to provide for further reporting obligations on such branches to the competent authorities of the Member State where they are established. ESMA has developed draft implementing technical standards which specifies the format by which national competent authorities must report information on branches of third-country firms to ESMA on an annual basis.
ESMA will consider the responses to the consultation when developing the draft Technical Standards for the European Commission.
The closing date for responses from stakeholders is 31 March 2020.