MiFID II: Investments Transparency

The European Securities and Markets Authority (ESMA), the principal financial markets regulator and supervisor in the European Union, has recently made public its Final Report on the revision of technical standards for passporting. This is in line with Article 34 of MiFID II. The suggested amendments are aimed at enhancing the existing Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS). This will necessitate investment firms to disclose more information during the passporting stage. Additionally, a new investment services and activities passport notification will enable National Competent Authorities (NCAs) to gain more insights into a firm's planned or prevailing cross-border activities. The report indicates a steady increase in cross-border operations directed towards retail clients by investment firms across the EU. This positive trend stimulates competition, broadens investment options for retail investors, and necessitates greater supervisory focus and cooperation among NCAs.

MiFID II: Enhanced Transparency measures

Investment firms operating within the European Union (EU) are on the verge of facing a significant regulatory shift. The European Securities and Markets Authority (ESMA) has recently proposed amendments to Article 34 of MiFID II (Markets in Financial Instruments Directive II), the cornerstone regulation governing the EU's financial markets. These proposed changes will profoundly impact the investment industry, forcing firms to rethink their compliance strategies and adapt to a more stringent regulatory environment.

Under the new rules, investment firms will be required to provide a more detailed account of their operations during the passporting stage, a process that facilitates their operation across various EU jurisdictions. This enhanced transparency measure could lead to greater investor trust, paving the way for an informed investment decision-making process. While this additional layer of transparency benefits consumers, it also translates into increased operational costs for firms. Hence, investment firms should bolster their compliance infrastructure to effectively manage these new disclosure requirements without disrupting their business operations.

Moreover, ESMA's introduction of a new investment services and activities passport notification system will strengthen the ability of National Competent Authorities (NCAs) to monitor and regulate firms' cross-border activities. This increased scrutiny can ensure a more regulated and compliant investment environment. Yet, it also amplifies the bureaucratic burden on investment firms. Thus, adopting robust record-keeping practices and developing a thorough understanding of various regulatory expectations across the EU will be essential for firms to navigate this complex landscape.

The proposed amendments are a response to a noticeable increase in cross-border activities in the EU investment market, signalling a more integrated and competitive environment. This increased market integration benefits both consumers and firms, but also necessitates improved supervisory cooperation among NCAs. The risk of eroding investor trust due to inadequately regulated cross-border activities underscores the need for firms to enhance their risk management capabilities.

There is no explicit timeline for these changes. However, given the complexity and potential impact of the amendments, firms should begin their internal preparations immediately. Monitoring ESMA updates for clarity on implementation timelines is also crucial.

In summary, the proposed changes to MiFID II, Article 34, symbolise a move towards a more transparent and regulated EU investment landscape. Investment firms must be proactive in adopting effective mitigation strategies to navigate these changes successfully while capitalising on the opportunities brought about by a more integrated market.

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ESMA publishes Final Report on revised technical standards for passporting

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