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ESMA Seeks EC Clarification on Ancillary Activity Test Under MiFID II

The European Securities and Markets Authority (ESMA) published a letter to the European Commission (EC) dated April 9, requesting clarification with respect to the exemption available to non-financial entities (NFEs) from having to be authorized as an investment firm under the revised Markets in Financial Instruments Directive (MiFID II).

NFEs are eligible for this exemption where their commodity derivative trading activity is ancillary to their main business. However, there is uncertainty as to whether the “ancillary to main business” assessment should be made at group or single-entity level.

ESMA previously published an opinion on the market size calculation for the assessment. In the opinion, ESMA refers to the assessment as being carried out at group level.

The letter to the EC highlights ambiguity between MiFID II (and related implementing legislation) and EC amendments to regulatory technical standards (RTSs), specifically RTS 20 (setting out the criteria establishing when an activity is considered to be ancillary to the main business). MiFID II supports the assessment at group level, while RTS 20 has been interpreted to indicate that the assessment should be carried out at single-entity level.

ESMA considers this a question of interpreting MiFID II and the related EC amendments and, as such, not appropriate for an ESMA question and answers document. Instead, ESMA invites the EC to provide further guidance on how and the level at which the assessment should be performed.

The letter is available here.

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About this Author

John Ahern, Financial Attorney, London, Katten Law Firm

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

+44 (0) 20 7770 5253
Carolyn H. Jackson, International Attorney, Katten Muchin law firm

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 and regulations. 

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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...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London

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...