On 6 May 2020, ESMA issued a public statement reminding firms of their obligation to act honestly, fairly and professionally in accordance with the best interests of their clients. Firms are also reminded to comply with all relevant MiFID II conduct of business and related organisational requirements, such as product governance, information disclosure, suitability and appropriateness.
Interestingly, ESMA notes in its statement that during the Covid-19 pandemic, several National Competent Authorities (NCAs) have recorded a significant increase in the number of investment accounts opened by retail clients and a surge in trading by retail clients. Owing to the surge ESMA was compelled to issue the statement noting that firms have “even greater duties” when providing investment or ancillary services to investors, especially when these investors are new to the market, or have limited investment knowledge and experience.
ESMA and NCAs, plan on continuing to monitor retail clients’ involvement in the financial markets and firms’ compliance with their conduct of business obligations and related organisational requirements under MiFID II.
In light of the above, on 11 May 2020, the Cyprus Securities and Exchange Commission (CySEC) issued a circular drawing the attention of Cypriot Investment Firms (CIFs) to ESMA’s public statement and requesting CIFs to review their policies and arrangements in place and ensure that they fully comply with their conduct of business obligations and related organisational requirements under MiFID II.
Despite the working challenges created by Covid-19, regulators around Europe continue to expect full, or indeed heightened, compliance with financial services regulation under MiFID II. It has never been more important to ensure that firms’ systems and controls are operating properly and are fit for purpose, especially where retail clients are involved.
ESMA’s public statement can be found here.
CySEC’s Circular No. 386 can be found here.