14 August 2014

ESMA releases responses to MiFIDII/MiFIR Consultation and Discussion papers

EuropeanIssuers do not consider that MIFID has been a success in facilitating access to finance for SMEs, but in principle we welcome the concept and introduction of SME Growth Markets. The current classification of existing growth markets for smaller companies (exchange regulated markets, such as AIM and ISDX in the UK, Alternext in France, FirstNorth in Scandinavia, NewConnect in Warsaw, etc) as multilateral trading facilities (‘MTFs’) resulting from MiFID, does not distinguish the primary market function that these markets serve, from the purely secondary market functions played by almost all other MTFs. In order to facilitate access to capital by SMEs across Europe, it is important that the primary market function is recognised and treated differently. This would, in turn, allow a holistic approach to be taken to the many regulatory issues currently impeding access to non-bank finance by SMEs across the EU.

Full EuropeanIssuers response

AFME do not believe that in all instances a separate and/or central complaints management function should be required as for example many complaints can be resolved at the first customer point of contact. In line with the three lines of defence model, operational oversight of the complaints handling process should sit with business functions in the first in-stance, with Compliance given access to the information/opportunity to engage in the process but no mandatory obligation placed on Compliance. The analysis of complains and complaints handling data should typically be performed by the first line business functions which hold the client relationship and are therefore best placed to undertake this role. AFME suggest rewording as follows: “Investment firms should establish a complaints-plaints management process which enables complaints to be investigated. Oversight of this process may be carried out by control functions such as Compliance or Legal.”  AFME has concerns regarding the requirement to provide the client with options to refer the complaint-plaint to an Alternative Dispute Resolution (ADR) entity or take civil action.

Full AFME response

ISLA argues that securities lending undertaken by banks and investment firms for investors should fall outside of the proposed restrictions, as a) these arrangements do not result in avoidance of client asset safekeeping rules, and b) the restrictions would be damaging to markets and investors. Regarding reporting to clients, ISLA requests that MiFID II requirements should defer to the new rules that will be established under the Securities Finance Regulation.

Full ISLA response

With regard to the disclosure of on-going charges, EFAMA would point out that it is practically and operationally impossible to stipulate, ex ante, the level of costs that will be incurred in the management of a product. Consequently, EFAMA urges ESMA not to reinvent the on-going charges figure for investment funds under the MiFID regime, but to adhere to the understanding developed under the UCITS Directive. This proven and tested interpretation of on-going charges should be regarded as appropriate in accordance with MiFID recital 78. In particular, there should be no obligation to disclose cash amounts in terms of on-going charges at the product level due to the many imponderables and assumptions, which have the potential to seriously mislead and confuse investors.

Full EFAMA response

ICMA points out the importance of applying the systematic internaliser rules to fixed income markets in a way that recognises the limited liquidity in many instruments. As well taking account of the exclusion for illiquid instruments, it will be important to give full weight to the specified ability of systematic internalisers to update and withdraw quotes; to decide objectively which clients are to have trading access to them; to refuse transactions on commercial considerations; to set limits on the number of transactions entered into in relation to a particular quote; and to improve on the quote. ICMA and AFME agree that the appropriate level is 0.4 per cent, for the reasons given in the AFME response.

Full ICMA response

Full ESMA media release

Consultation Paper - 252 Public Responses

Discussion Paper - 175 Public Responses

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