27 May 2020

EFAMA calls for changes to investor protection rules in the MIFID II / MIFIR Review​

such as to provide more flexibility to professional investors, to increase market transparency  by mandating the creation of a consolidated tape for all financial instruments and to address data quality and data cost issues through a stricter enforcement of existing rules"...EFAMA's Director General Tanguy van de Werve commented.

As a priority, EFAMA proposes revisions to the Level 1 texts only with regards to the issues raised around 'semi-professional' investors and opt-outs for professional investors for certain requirements.

EFAMA indicates that these revisions can be made by way of a more flexible interpretation of the Level 1 framework via targeted amendments to the Implementing Directive and Regulations as well as to ESMA's guidelines and Q&As, currently seen as burdensome for the wider financial industry.

In its response, EFAMA strongly suggests making thematic Q&A updates every year, with enough time for the industry to implement these changes.

More specific recommendations across investor protection, capital markets and infrastructure include:

Response on Investors Protection

• More flexibility should be provided to professional investors and eligible counterparties. These types of investors should either be allowed to opt-out of many cost disclosure and investor protection requirements or should be out of scope, being allowed to opt-in.

• While EFAMA agree with the notion of 'semi-professional clients' (and the intention to provide much-needed flexibility for these types of clients), it does not believe that the creation of a new client category is the right way forward.

• Delete the '10% depreciation alert' as it encourages short-term behaviour, does not provide any added value for these types of clients and increases operational costs to comply with this requirement. 

• Retail AIFs (i.e. following national retail schemes) should automatically be considered non-complex financial instruments that can be sold “execution-only".

• EFAMA disagree with an outright ban on inducements as it would have substantial and far-reaching consequences in terms of overall access to investment advice for all European citizens.

Where issuer-sponsored research is concerned, it should qualify as an acceptable minor nonmonetary benefit, and therefore be kept out of the inducement regime.

Response to Capital Markets and Infrastructures

• MiFID II still fails to deliver a consolidated tape (CT) and the notion of “Reasonable Commercial Basis" in data cost has been largely overlooked. EFAMA therefore call on the Commission to enforce the creation of a consolidated tape.

• EFAMA also call for both the Share Trading Obligation (STO) and the Derivatives Trading Obligations (DTO) to be completely removed. If not possible, at the very least the STO should be strictly imposed on EU securities and the DTO should be strictly relying on the application of the clearing obligation, as defined in EMIR Refit.

• EFAMA need all sources of liquidity to deliver the best results to our clients. Therefore, the Systematic Internalisers' regime must be protected, to shield liquidity and financial market innovation.

FX spot must remain excluded from the list of financial instruments. Any perceived regulatory gap should be assessed and managed through the Payment Service Directive or the Anti-Money Laundering Directive. In addition, and as ESMA rightly notes, the FX Global Code of Conduct ('the Code'), developed by central banks and market participants  from sixteen jurisdictions around the globe,  has already achieved progress in promoting higher standards in the wholesale FX market .

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