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The European Supervisory and Markets Authority said in a letter that its analysis of the third-country regime in the revised Markets in Financial Instruments Directive (MiFID II) “indicates that there might be circumstances where firms located in the EU would be subject to more stringent requirements than firms located outside the EU.”
That calls into question the entire MiFID II third-country regime, as it remains possible for third-country firms to provide investment services in the EU, but without being subject to certain requirements from January 3, 2018, according to ESMA.
MiFID II contains rules applicable to non-EU firms providing investment services or activities, but ESMA said this “falls short of achieving full harmonization.” For example, there are still circumstances where third-country firms would not be subject to the new trading rules, but only to the national regimes already in place.
This issue “deserves particular attention,” considering the U.K.’s withdrawal from the EU, the letter noted. ESMA called on the Commission to consider whether further integration of rules applicable to non-EU firms should be introduced in order to avoid regulatory arbitrage between jurisdictions inside and outside the EU.
In addition, ESMA called for an ability to temporarily suspend the trading obligation for derivatives in response to rapid changes in the market, such as a significant drop in liquidity. It also requested an amendment of MiFID II to introduce a harmonized EU framework governing the placing of trading screens by third-country venues.
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