ECON: COVID-19 recovery deal: balance investor protection and firms’ compliance costs

09 December 2020

Economic and Monetary Affairs Committee negotiators struck a deal so that EU companies can access a diverse range of funding and support the post-COVID-19 recovery.

The agreement reached with the Council on targeted adjustments to the Markets in Financial Instruments Directive (MIFID II) should facilitate economic recovery by removing unnecessary administrative burdens while maintaining a balance between protecting investors and keeping compliance costs low for firms. The changes apply mostly to professional clients and eligible counterparties such as insurers, pension funds, or public institutions.

The changes agreed by the negotiators on Wednesday include:

• Professional clients will no longer receive information on costs and charges. They will however still receive information on investment advice and portfolio management.

• Ex-post information on costs and charges should be supplied without delay and clients should be able to receive such information over the phone (or on paper if requested). Moreover, the client should be given a breakdown of the costs prior to concluding a transaction.

• Retail clients will be able receive information in digital format instead of on paper, but should be given at least eight weeks’ notice and the choice to continue receiving information on paper or switch to a digital format.

• Certain product governance requirements will no longer apply to corporate bonds with “make-whole clauses” – which protect investors against losses when an issuer opts for early repayment, by guaranteeing them a payment equal to the net present value of the coupons. In addition, financial instruments distributed to eligible counterparties will be excluded.

• Commodity derivatives: some changes to the position limits regime, including a new definition for agricultural commodity derivatives. This definition clarifies that agricultural commodity derivatives include fisheries as well as animal feed. For those agricultural commodities the current strict regime will still apply, while less sensitive contracts will enjoy a lighter regime.

MEPs also ensured that the Commission will present if appropriate a proposal for a review of both the Market in Financial Instruments Directive (MIFID) and the Regulation (MIFIR) by 31 July 2021 at the latest. It should consider issues related to market structure, data, trading and post trading, research rules, rules on payment to advisors, the level of professional qualifications of advisers in Europe and client categorisation.

Quote

Markus Ferber (EPP, DE) the lead MEP, said: “During the pandemic, many companies have been bleeding equity and desperately need access to capital markets. The targeted adjustments in the MiFID II Quick Fix will make it easier for companies to tap into financial markets. We will get rid of red tape for investment firms, while still protecting investors. With these adjustments, we have made financial markets regulation more targeted and have protected consumers.

We have also got rid of some regulatory obstacles in the market for commodity derivatives. This will be particularly helpful for innovative clean energy contracts that are vital for the energy transition and the Green deal. In the long run, making it easier to trade Euro-denominated energy derivatives will also strengthen the Euro’s international standing.”

Background

This legislative proposal amending MiFID II is part of a set of measures (Capital Markets Recovery Package) to facilitate post-COVID-19 economic recovery, which includes also legislative proposals amending the Prospectus Regulation, the Securitisation Regulation, and the Capital Requirements Regulation.

ECON

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