On 13 January 2021, the European Securities and Markets Authority (the "ESMA") issued a public statement to remind firms of Directive (EU) 2014/65 (the "MiFID II") rules on "reverse solicitation" in the context of the exit of the United Kingdom from the European Union (the so-called "Brexit").
Regarding the rules on "reverse solicitation", it is relevant point out that, according to Article 42 of MiFID II, a third country firm may provide investment services or activities to retail or professional clients established or situated in the European Union without the requirement to establish a branch within the European Union (1), where investment services or activities are initiated by such clients at their own exclusive initiative (2).
That said, in the above-mentioned public statement, ESMA has specified that some questionable practices by firms regarding reverse solicitation have emerged as consequence of Brexit. "For example, some firms appear to be trying to circumvent MiFID II requirements by including general clauses in their Terms of Business or through the use of online pop-up "I agree" boxes whereby clients state that any transaction is executed on the exclusive initiative of the client".Therefore, ESMA has reminded that:
- where a third-country firm solicits clients in the European Union or promotes or advertises investment services or activities together with ancillary services in the European Union, it should not be deemed as a service provided at the own exclusive initiative of the client (3);
- as for the means of such solicitations, ESMA has reminded firms that every communication means used, such as press releases, advertising on internet, brochures, phone calls or face-to-face meetings, should be considered to determine if the client has been subject to any solicitation, promotion or advertising in the European Union on the firm’s investment services or activities or on financial instruments;
- the provision of investment services in the European Union without proper authorisation in accordance with the European and the national law applicable in Member States exposes service providers to the risk of administrative or criminal proceedings, for the application of relevant sanctions; and
- (when using the services of investment service providers which are not properly authorised in accordance with European and Member States' law, investors may lose protections granted to them under European relevant rules, including coverage under the investor compensation schemes in accordance with Directive 97/9/EC.
- See Article 39 of MiFID II.
- ESMA has already provided guidance to firms on the application of the MiFID II requirements on the provision of investment services and activities by third country firms, including how the notion of a client initiating "at its own exclusive initiative the provision of an investment service or activity by a third-country firm" included in Article 42 of MiFID II should be understood and applied (see, specifically, the paragraph 13, question 1, of the Question and Answer on MiFID II and MiFIR investor protection and intermediaries topics (ESMA35-43-349) (the "Q&A").
- ESMA also specified that this is true "regardless of any contractual clause or disclaimer purporting to state, for example, that the third country firm will be deemed to respond to the exclusive initiative of the client" (see paragraph 13, question 1, of the Q&A).
Authors:Luca Lo Po' and Claudio Saba.