ESMA reminds investment firms of the MiFID II rules on "reverse solicitation"

In a statement dated 13 January 2021, ESMA reminded investment firms not established or situated in the European Union (EU) to comply with MiFID II requirements for the provision of investment services. As reason for the statement, the Authority referred to questionable business practices based on an alleged "reverse solicitation" (in Germany also called "passive freedom to provide services").

According to Art.

42

MiFID

II, investment firms without a licence or branch in an EU member state may only provide their services within the EU if the initiative for this comes exclusively from the client in question and is thus a so-called reverse solicitation. In ESMA's view, this is not the case if investment firms merely state in their general terms and conditions that they provide their services exclusively on the initiative of the client, but actually deviate from this. According to ESMA, irrespective of such contractual agreements, an exclusive initiative of the client should not automatically be assumed and, in this regard, refers to Recital (111) to MiFID

II.

Investment firms operating in the EU without authorisation risk the initiation of criminal or administrative proceedings. If investors use the services of investment firms that are not duly authorised, they may lose the protection granted to them under EU rules, in particular the coverage provided by investor-compensation schemes under Directive 97/9/EC.

Dr. Christoph Schmitt

Joel F. Schaaf