March 5, 2021

Volume XI, Number 64

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ESMA Reminds Firms of MiFID II Rules on Reverse Solicitation Post-Brexit

On January 13, the European Securities and Markets Authority (ESMA) published a statement reminding firms of the requirements under the Markets in Financial Instruments Directive (MiFID II) relating to the provision of investment services to retail or professional clients by firms not established or situated in the EU (the Statement).

Following the end of the transition period on December 31, 2020, ESMA recognized certain practices by firms around reverse solicitation have emerged. For example, some firms appear to be attempting to avoid MiFID II requirements by including general clauses in their Terms of Business or using an online “I agree” pop-up boxes where clients state that any transaction is executed on the exclusive initiative of the client.

In the Statement, ESMA reminds firms that where a third-country firm — such as a UK firm — solicits clients or potential clients in the EU or promotes investment services by any means of communication, it would not be deemed as a services provided at the own exclusive initiative of the client. In ESMA’s view, this is the case — regardless of any contractual clause or disclaimer stating otherwise (i.e., if any non-EU investment firm has a website promoting its services and the website is open to prospective EU clients, the non-EU firm will not be able to justify that a request for services from an EU person is exempt from MiFID II rules under reverse solicitation because it is not a request at the own exclusive initiative of the EU client).

ESMA further highlights the following in the Statement:

  • the provision of investment services in the EU, without appropriate authorization in line with EU Member States’ law(s), could lead to services providers at risk of administrative or criminal proceedings for the application of relevant sanctions; and

  • when using the services of investment services providers that are not authorized in line with EU and Member States’ law, investors may lose protections granted to them under EU laws. This includes investor compensation schemes under the Investor Compensation Schemes Directive.

See ESMA’s Statement.

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©2020 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 15
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About this Author

Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws...

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

44-0-20-7776-7666
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