On January 13, the European Securities and Markets Authority (ESMA) published a statement reminding firms of the requirements under the Markets in Financial Instruments Directive (MiFID II) relating to the provision of investment services to retail or professional clients by firms not established or situated in the EU (the Statement).
Following the end of the transition period on December 31, 2020, ESMA recognized certain practices by firms around reverse solicitation have emerged. For example, some firms appear to be attempting to avoid MiFID II requirements by including general clauses in their Terms of Business or using an online “I agree” pop-up boxes where clients state that any transaction is executed on the exclusive initiative of the client.
In the Statement, ESMA reminds firms that where a third-country firm — such as a UK firm — solicits clients or potential clients in the EU or promotes investment services by any means of communication, it would not be deemed as a services provided at the own exclusive initiative of the client. In ESMA’s view, this is the case — regardless of any contractual clause or disclaimer stating otherwise (i.e., if any non-EU investment firm has a website promoting its services and the website is open to prospective EU clients, the non-EU firm will not be able to justify that a request for services from an EU person is exempt from MiFID II rules under reverse solicitation because it is not a request at the own exclusive initiative of the EU client).
ESMA further highlights the following in the Statement:
- the provision of investment services in the EU, without appropriate authorization in line with EU Member States’ law(s), could lead to services providers at risk of administrative or criminal proceedings for the application of relevant sanctions; and
- when using the services of investment services providers that are not authorized in line with EU and Member States’ law, investors may lose protections granted to them under EU laws. This includes investor compensation schemes under the Investor Compensation Schemes Directive.
See ESMA’s Statement.