Thursday June 2 2016

News Source: Fund Regulation

Focus: MIFID and MIFIR

Type: General

Country: European Union




On 2nd June 2016, the European Securities and Markets Authority (ESMA) published a Statement reminding banks and investment firms (‘firms’) of their responsibility to act in their clients’ best interests when selling bail-in-able financial instruments.

New Banking Recovery and Resolution Directive (BRRD) rules in force since January 2016 mean firms are likely to issue a significant amount of potentially loss-bearing instruments to fulfil their obligations and ESMA is concerned investors – in particular retail investors – are unaware of the risks they may face when buying these instruments.

The Statement emphasises that firms must comply with their obligations under MiFID and the importance of:

  • providing investors, both existing and new, with up to date, complete information drafted under the supervision of the compliance function;
  • managing potential conflicts of interest, in particular, when a firm sells its own bail-in financial instruments directly to its customers – a practice known as self-placement; and
  • ensuring the product is suitable and appropriate for the investor which may entail collecting more in-depth information about the client than usual to reflect the fact a client could lose money without the firm entering into insolvency.

The BRRD addresses how national and cross-border firm failures which are deemed to have a public interest should be managed. EU firms are required to hold a certain amount of instruments, such as bonds, to bear some of the losses in the event of failure. These resolution measures were introduced as an alternative to government bailouts of banks with public funds.

Please click on the above link for further details.