On January 13, the European Securities and Markets Authority (ESMA) published a statement reminding entities of the importance of complying with the passive management obligations foreseen in MiFID II. It did so after having detected questionable practices once Brexit entered into force on January 1. From the FinReg 360 consultancy they have prepared an explanatory document analyzing what these practices have been that are at least questionable.
To put in context, we must remember that Article 42 of MiFID II provides that a retail or professional client at the request of the EU, on their own initiative, can request the provision of an investment service from a non-EU entity, without it being necessary for this entity to have an authorized branch in the EU member state where it is provided (reverse solicitation). However, according to ESMA, some practices of entities that are trying to circumvent these European regulations have been detected.
For example, as explained in FinReg360, “some examples of these practices are the Use of Generic contractual clauses in which the client declares that every transaction is at his initiative or the inclusion of windows pop-ups in which the client accepts that every transaction is at his initiative”.
Hence, ESMA has chosen to recall that recruitment, announcement or promotion activities by entities from countries outside the EU, whether through press releases, internet advertisements, calls or face-to-face meetings, are activities that they must be taken into account to assess case by case whether the initiative corresponds to the client or the entity.
In fact, it underlines that entities established outside the European Union, something that now also affects entities in the United Kingdom, cannot actively attract potential EU clients, either directly or through third parties, since In these cases, the service provided is not considered to have been produced at the customer’s initiative.
Further, warns that this type of service provision if they do not have the proper authorization carries a risk of sanction.
ESMA’s full statement is available on its website through this link.
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