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European Securities and Markets Authority (ESMA) Reviews Supervisory Practices on MiFID Investor Information

On December 11, the European Securities and Markets Authority (ESMA) published a press release stating that it had conducted a review of how EU national regulators supervise conduct of business rules under the Markets in Financial Instruments Directive (MiFID) on providing fair, clear and not misleading information to clients.

The review focused on the rules in a sample selection of EU countries (Cyprus, the Czech Republic, Germany, Italy, Portugal and the United Kingdom) and found that a variety of approaches were being followed with a differing intensity of supervision. A number of areas for improvement were identified. They include: 

  • enhanced use of on-site inspections and thematic reviews;

  • a specific focus on conduct of business issues in firms’ risk assessments; and

  • greater efforts to detect failings by firms in a timely manner. 

The review’s key findings covered the following areas: 

  1. Ex-ante and ex-post supervision – supervisory systems are divided between ex-ante and ex-post reviews of marketing material. Within the ex-post approach there is also divergence in terms of the timeliness with which regulators review the material following its dissemination and consider complaints made by clients of firms;

  2. Direct and indirect supervision – while some regulators directly supervise firms’ compliance with their obligations relating to the provision of information and marketing material to clients, others rely on annual checks performed by external auditors. The latter approach may make it difficult to detect failings by firms in a timely manner due to the successive sampling process employed by auditors and then the regulators concerned;

  3. Complaints and sanctions – a low level of complaints and equally low level of sanctions are reported by regulators in the area of information and marketing to clients; and

  4. Definition of information and marketing communication – there is no precise definition of the term “marketing communication” in EU law; this would need to be further defined in order to build effective convergence of supervisory practices. 

In connection with key finding 4 referenced above, a definition of “marketing” already exists under the Alternative Investment Fund Managers Directive and the ESMA release only refers to “marketing communications under MiFID,” so it is unlikely that the changes would be significant for the funds industry and it would be most likely to impact MiFID firms promoting/marketing shares and other securities that are not interests in alternative investment funds.   

ESMA’s findings are currently at a high level and the findings and recommendations made by ESMA are merely preliminary; more work will need to be undertaken by ESMA and the European Commission to develop these findings. Revisions to MiFID (in the form of a new EU directive and a new maximum-harmonization regulation) have already been approved by the European Parliament and Council and are due to come into force in January 2017. It appears that ESMA’s latest round of findings will be developed into a further amending directive and/ or regulation—likely a MiFID III. 

The ESMA press release is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IV, Number 349


About this Author

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...