While the latest chapter of the Greece tragedy plays out, today ESMA quietly released its final report on draft technical standards on the authorisations, passporting, registration of third country firms and cooperation between EU competent authorities.
Compared to the Consultation Report published in December 2014, ESMA has clarified a number of issues, for example, on the information firms have to declare on “effective” supervision. For a brief summary of the main changes to the technical standards see our LinkedIn discussion in the MiFID II Group.
However, one of the key questions, in relation to the registration of third country firms, remains outstanding. As always with ESMA releases, we opened this with trembling fingers, hoping that we would find some certainty. Alas, again it is not to be the case.
Third country firms
Third country firms (i.e., non-EEA firms), which do not intend to provide services to eligible counterparties or professional clients in the EU (including, therefore, market makers and prop traders), face a regulatory lacuna: if a third country firm does not have a “branch” in the EU and does not have clients, it is neither an ‘investment firm’ nor a ‘third country firm’ for the purposes of MiFID 2, but all signs point to such firms being within scope for political expediency when one looks at the general exemptions available under Article 2 of MiFID 2.
This Final Report deals very clearly with what happens after the EU Commission has issued a declaration of ‘equivalence’ for a third country regulatory regime. However, it does not deal with either:
- The situation or Member State coordination prior to such an equivalence decision having been made; or
- Third country firms which do not have eligible counterparty or professional clients but wish to undertake investment activities in the EU.
The situation, as we see it, remains as it was. The understanding is that the political will of the Parliament was “no unregulated product, no unregulated market and no unregulated participant” and there remains disagreement as to whether the text of MiFID 2 permits/achieves that and, if so, what are the consequences. From recent evidence, the Parliament is not entirely happy with the legislative process for MiFID 2 so far (even if it might only be from an internal transparency of decision-making perspective).
Detailed rules delays
Notwithstanding that the January 2017 deadline is very unlikely to change, the detailed rules (and any clarifications like the one we discuss above) will be pushed-back until at least September 2015. The delay could be even longer if the Parliament throws-up on the RTSs/ITSs it sees. So, our view generally remains the same as it always has been – unless a third country firm (which does not have clients) or, indeed importantly, an EU firm with third country clients is happy that one of the Article 2 exemptions apply to it (or its clients) for the long-term, it should assume the worst. For now.