EUROPEAN UNION: ESMA Publishes Additions to MIFID II/MIFIR Investor Protection Q&A’s

Tuesday October 3 2017

The European Securities and Markets Authority (ESMA) has added 12 new Q&As to its Questions and Answers (Q&A) document on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). The purpose of the Q&A’s is to promote common supervisory approaches and practices in the application of MiFID II/ MiFIR for investor protection topics.

 Updates have been made to the following issues:

• Application of best execution to OTF operators
• Disclosure of quality of execution when using direct electronic access
• Scope of activities covered by the requirements in Article 16(7) of MiFID II
• Flexibility allowed by client agreement
• Calculation of ex-ante transaction costs
• Price of the position of the investment firm
• Identification and disclosure of mark-ups and structuring costs
• Eligible counterparties not intending to offer financial instruments to clients
• Specific limitations to cost disclosure for eligible counterparties and professional clients
• Disclosure in case of zero costs and charges
• Timing of first annual ex-post reports on costs and charges
• Information to clients on categorisation

The most notable of these change to the Q&A’s is the change to the definition of Article 16(7) of MiFID II which confirms the scope the Record Keeping Requirements.

The definition states that;

• The requirements set out in Article 16(7) of MiFID II and the related Article 76 of the MiFID II Delegated Regulation apply “at least” to the provision of services (1), (2) and (3) included in Annex I, Section A of MiFID II.
• Article 16(7) only requires the recording of communications in relation to the client order services mentioned above. However, the second subparagraph of Article 16(7) also requires those conversations and communications that are “intended to result in” the provision of these services to be recorded.
• In practice, other investment services like investment advice (paragraph (5) of Annex I, Section A) may be provided at the point when there is an intention to provide a client order services. In this case, the content of the advisory service would need to be recorded, as it would de facto be in scope of Article 16(7) of MiFID II.
• ESMA notes that Members States may also decide to extend the requirements further to other MiFID services, or non-MiFID services and products.
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