The European Securities and Markets Authority (ESMA) published a consultation paper on the review of the technical standards under Article 34 of the Markets in Financial Instruments Directive (MiFID II[1]), covering the provision of investment services throughout the European Union, on November 17, 2022.[2] On 11 July 2023 ESMA published its Final Report[3] containing draft amendments to the technical standards (RTS and ITS) on the European passport regime.
Background
Article 34 of MiFID II mandates that ESMA draft regulatory technical standards (RTS) and implementing technical standards (ITS) to (i) specify the information to be notified by firms that wish to provide cross-border investment services without establishing a branch; and (ii) establish standard forms, templates, and procedures for the transmission of that information.
In June 2015, ESMA published its Final Report,[4] including the relevant draft RTS and ITS, which led to the publication of (i) Delegated Regulation (EU) 2017/1018 on RTS specifying the information to be reported by investment firms,[5] market operators, and credit institutions; and (ii) Implementing Regulation (EU) 2017/2382 on ITS pertaining to standard formats, templates, and procedures for the transmission of information.[6]
Since then, ESMA has highlighted several deficiencies in the execution of Article 34’s freedom to supply services and indicated areas where the RTS and ITS should be improved.
The European Securities and Markets Authority (ESMA) and the National Competent Authorities (NCAs) have observed that the ongoing digitalisation of financial services, coupled with the pandemic’s effect of increasing retail investors’ exposure to securities markets, has resulted in a significant increase in cross-border activities. ESMA recognises that this growth in activity is compatible with the purpose of building a unified EU market for financial services, but warns that without a greater emphasis on supervision, there is a danger that investor confidence may be eroded.
The flexibility to provide services in host member states without establishing a branch depends on the monitoring of the home NCA and the cooperation between the home and host NCAs. Any investment business desiring passporting privileges must tell its home NCA through an investment services and activities passport notification of its intention to do so. Therefore, the information the home NCA obtains at the passport notice stage is crucial for examining the proposed cross-border operations of the investment enterprise.
The latest update
Draft amendments to the above-mentioned EU Regulations are contained in the Final Report[7] and would introduce new information requirements to the list of data to be provided by investment firms at the passport notification stage. The notification of a new passport for investment services and activities will also provide national competent authorities with additional information on the cross-border activities carried out or planned by a firm.
ESMA and NCAs note the steady growth in cross-border activities provided to retail clients by investment firms across the EU. This has clear benefits for consumers and investment firms, as it promotes competition and increases the investment options available to retail investors. However, cross-border activities require national supervisors to step up their attention and cooperation efforts in order not to undermine investor confidence.
The European Securities and Markets Authority has submitted the final report to the European Commission and will give additional advice and technical support should the Commission proceed with the assessment.
References
- https://eur-lex.europa.eu/eli/dir/2014/65/oj ↑
- https://www.esma.europa.eu/sites/default/files/library/esma35-36-2640_cp_on_passporting_ts_under_art_34_of_mifid_ii.pdf ↑
- https://www.esma.europa.eu/sites/default/files/2023-07/ESMA35-36-2848_Final_Report_on_review_of_technical_standards_on_passporting_under_Article_34_of_MiFID_II.pdf ↑
- https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-esma-1006_-_mifid_ii_final_report_on_mifid_ip_technical_standards.pdf ↑
- https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32017R1018 ↑
- https://eur-lex.europa.eu/eli/reg_impl/2017/2382/oj ↑
- https://www.esma.europa.eu/sites/default/files/2023-07/ESMA35-36-2848_Final_Report_on_review_of_technical_standards_on_passporting_under_Article_34_of_MiFID_II.pdf ↑
