Brexit - ESMA reminds firms about MiFID rules on reverse solicitation

On 13 January 2021, the European Securities and Markets Authority (ESMA), issued a Public Statement to remind firms of the rules in MiFID II on reverse solicitation in the context of marketing to retail or professional clients by third country firms, including those in Brexit Britain.

ESMA comments in its statements that “questionable practices” have evolved in recent times by firms around the concept of reverse solicitation. This concept is designed to determine the territorial limits of EU licensing and other obligations under MiFID and applies where a product or service is marketed at the client´s own “exclusive initiative”. In its statement ESMA reminds firms that as specified in MiFID II that where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client. This stands 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.

ESMA also points out that:

• The provision of investment services in the EU without proper authorisation in accordance with the EU 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.
• When using the services of investment service providers which are not properly authorised in accordance with EU and Member States’ law, investors may lose protections granted to them under EU relevant rules, including coverage under the investor compensation schemes.

ESMA has 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.

The Public Statement can be found here.

ESMA’s news release can be found here.