European Markets Under MIFID II – Easier Access Or More Hurdles?
Approaching retail and elective professional clients
Although the European Commission proposed to postpone the implementation of the MiFID II regulation for another year until Jan. 3, 2018, third country market participants who want to stay in the European Market should nevertheless prepare for a stricter access regime to retail and elective professional clients (who have opted-in to be treated as professional clients).
So far the access to European markets for third country firms has been a patchwork of different requirements, varying from Member State to Member State and depending on the extent of the offered services on a cross-border basis. Up until now, the provision of financial services without running an EU branch was an attractive option.
MiFID II aims – in contrast to the first infrastructure market regulation – to harmonize the legal framework for third country firms providing investment services and activities to retail and elective professional clients in the EU.
Member States may require third country firms to establish a branch in their territory in case the foreign firm wants to provide investment services or perform investment activities in said Member State. Such a foreign branch would then need to be authorized by the competent national authority. The requirements for granting authorization to a third country branch are again set out in the Directive and are thus harmonized on the European level as to organizational, compliance and conduct of business specifications. It is specifically mentioned that Member States shall not treat any branch of third country firms more favorably than EU firms.
Are cross-border services still allowed?
The passive freedom of services exemption – now explicitly stated in the Directive – will remain to offer the foreign firm access to European investors without any necessity of authorization by European regulators whenever the investor initiates at their own request the provision of investment services or activities by a foreign firm.
Foreign investment firms have made use of this exemption throughout Europe in the past and have partly used the existing business relationships once established by the investors to also offer new products and other services than the ones required by the investors initially.
The European legislator felt obliged to clarify that an initiative by such an investor shall not entitle the third country firm to market new categories of investment products or investment services to that client otherwise than through a branch. By adding this requirement, the European legislator has indeed intended to harmonize access to the European retail market through branches. It is expected that national authorities will restrict their administrative practice on the passive freedom of services exemption based on the guidance by MiFID II.
Access to professional clients
In addition, under MiFID third country firms will be allowed to freely approach professional clients such as other investment firms, credit institutions and fund managers. So they will be able to provide investment services and activities throughout the EU without establishing a branch once the third country firm has been recognized as equivalent to the European legal and supervisory standards by the European Commission.
In an upcoming article, we will discuss who will be eligible for the AIFMD third-country passport and when it will be available.
The authors Dr. Verena Ritter-Döring and Dr. Richard Reimer are lawyers at Hogan Lovells International LLP in Frankfurt and specialized in European and German financial regulatory law.
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