19 November 2019

ESMA's Maijoor delivers keynote address at Euro Finance Week

The Chair of the European Securities and Markets Authority took stock of achievements of MiFID II that we have seen so far and outlined possible areas of the rules package review deserving further analysis that will likely be considered up for amendment under the upcoming German EU Presidency.

To prepare for Brexit, which is now likely to occur early next year, UK firms are setting up entities and expanding activities in the EU27 to allow them to continue serving EU clients. This will have quite an impact on our financial landscape and will ultimately result in the strengthening of several financial centres in the EU and we can already see that Frankfurt is one of them.

Germany will also have the EU presidency in the second half of 2020 and, as we can see from the recent position papers of the German Ministry of Finance, there could be an appetite to consider the amendment and revision of certain provisions in MiFID II and to work on some possible near- and medium-term changes to MiFID II.

I want to thank the Ministry of Finance for its constructive contribution to the discussion on possible changes to MiFID II. Moreover, considering possible changes to MiFID II, the ongoing dialogue with stakeholders will become even more important. Therefore, this event is an excellent opportunity to have an exchange of views with the German financial market community on MiFID II priorities.

Before moving to our work on the MiFID review and possible areas of MiFID II deserving further analysis, let me start with highlighting some achievements of MiFID II that we have seen so far:

• MiFID II has to an extent delivered on its goal to improve transparency in financial markets. As an example, ESMA believes that trade transparency in asset classes such as ETFs and derivatives subject to the trading obligation has positive effects on the market as a whole. Anecdotal evidence suggests that liquidity in ETFs has increased markedly since the introduction of MiFID II. At the same time, it is fair to recognise that there are areas, such as bond market transparency, where we are not quite there yet. I would also like to note that the negative side effects of increased transparency in secondary markets that many stakeholders were concerned about ahead of MiFID II implementation did not materialise;

• MiFID II started delivering on its goal to move more trading onto regulated trading venues. For instance, we currently have 83 organised trading facilities (OTFs) operating in the EU, allowing the execution of transactions on venue that largely used to be traded OTC. Moreover, we can observe a trend of moving more trading in bonds to regulated trading venues. While the latter is certainly also linked to the general trend towards more electronic trading, the range of trading modalities possible under MiFID II on regulated trading venues also contributed to this trend. At the same time, I acknowledge that developments in other areas may be less positive, and that we need to assess whether MiFID II requirements are all adequately calibrated when trying to promote multilateral trading;

• Still in the area of transparency, MiFID II has brought more information to clients on the costs of the products and the services provided to them so they can make informed investment decisions and to better check the outcome of their investments. These positive results were broadly supported by a large-scale survey published earlier this year by BaFin based on a sample of more than 15,000 individuals approached;

• On the side of strengthening the role of firms providing services to clients, especially retail, MiFID II has broadened the regulatory and supervisory focus through the implementation of the new product governance requirements which have emphasised the responsibility of firms, and their senior management, when designing investment products and when selecting them for offering to clients;

• Rules on research unbundling are one of the other significant changes brought forward by MiFID II. While a full assessment of the impact of the new rules is premature, we see a significant number of asset managers absorbing the cost of research into their own resources instead of opaquely charging their clients through their trading 3 commissions. The new rules have forced managers to pay increased attention to research, and whether they need the research and to the quality of what they actually get. It is interesting to note the increased interest in the new rules by actors outside the EU. However, it is fair to say that we also hear concerns about the availability of research on smaller listed entities. When reviewing this specific issue, we need to ensure that there is solid evidence on the table to assess whether an adjustment is warranted: we should not be surprised that those market participants that lost opportunities as a result of changing business models are complaining about the new arrangements;

• Another achievement should be mentioned in relation to the strengthening of the supervisory toolkit at EU and national level through the new product intervention powers. By using our new powers ESMA was able to prevent or reduce investors’ detriment by prohibiting the marketing, distribution and sale of binary options to retail clients and imposing a set of restrictions in relation to CFDs addressed to retail clients. These temporary product intervention measures expired this summer. At this time almost all National Competent Authorities (NCAs) in the EU have taken national intervention measures under MiFID II to address, in a permanent way, the investor protection concerns arising from these products and we can certainly say that, action in relation to these types of financial products has been very effective in terms of both investor protection and convergence among regulators in the EU;

• ESMA’s convergence efforts, together with the NCAs, generally result in a more consistent application of the MiFID II legal framework in the EU. These efforts facilitate the interpretation of requirements through guidelines, opinions, Q&As and the sharing of practical experience among supervisors. We are aware that differences persist; convergence will always be an on-going process in which, once you achieve certain outcomes, you should pursue a new target; and

• When undertaking these activities, one of our objectives has been to make the rules work by providing clarifications requested by market participants or competent authorities, especially in areas in which legal requirements are new. An example of this concerns indeed the guidelines on product governance, in which we have focused on the key topic of the identification of the target market. We have provided the requested guidance to stakeholders, also to avoid that the adoption of different approaches for the identification of the product’s target market in different jurisdictions could negatively affect their distribution in the single market. Another example concerns the Q&A that ESMA issued to handle the application of the disclosure 4 requirements on costs and charges to investment services provided over the phone, in relation to which a strict reading of the requirements would have made this way of providing services to clients very complex. [...]

Full speech

 

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