MiFID II review: EFAMA calls for changes to investor protection rules
22 May 2020 Brussels
Image: Image: Jaroenchai/Shutterstock.com
The European Fund and Asset Management Association (EFAMA) has given its response to the European Commission's consultation on the second Markets in Financial Instruments Directive (MiFID II) for investment firms and market operators.
In its response, EFAMA reinforced its support for the MiFID II/MiFIR framework but called for targetted improvements for professional investors to increase market transparency.
As a priority, EFAMA proposes revisions to the level-one texts only with regards to the issues raised around ‘semi-professional’ investors and opt-outs for professional investors for certain requirements.
EFAMA indicated that these revisions can be made by way of a more flexible interpretation of the level one framework via targeted amendments to the implementing directive and regulations.
The association further notes that changes should be made to the guidelines and Q&As of the European Securities and Markets Authority (ESMA), which it says are currently seen as burdensome for the wider financial industry.
Creating thematic Q&A updates every year, with enough time for the industry to implement these changes, was, therefore, one of the primary suggestions from EFAMA.
Capital markets and infrastructures
Regarding its response to capital markets and infrastructures, the association stresses that MiFID II still fails to deliver a consolidated tape (CT) and the notion of “reasonable commercial basis” in data cost has been largely overlooked.
The association, therefore, calls on the commission to enforce the creation of a CT.
This view is reinforced by the response of the World Federation of Exchanges to the same consultation which notes that a post-trade tape of record represents the only CT which has a clear use case and would be likely to be viable in terms of costs and benefits.
Elsewhere, EFAMA drew attention to the share trading obligation (STO) and the derivatives trading obligations (DTO) and called for it to be completely removed.
“If not possible, at the very least the STO should be strictly imposed on EU securities and the DTO should be strictly relying on the application of the clearing obligation, as defined in EMIR Refit,” it explains.
Investor protection
On investor protection, EFAMA says that more flexibility should be provided to professional investors and eligible counterparties.
According to EFAMA, these types of investors should either be allowed to opt-out of many cost disclosure and investor protection requirements or should be out of scope, being allowed to opt-in.
Meanwhile, EFAMA said it does agree with the notion of 'semi-professional clients', but it does not believe that the creation of a new client category is the right way forward.
EFAMA suggested deleting the ‘10 percent depreciation alert’ as it encourages short-term behaviour, does not provide any added value for these types of clients and increases operational costs to comply with this requirement.
Regarding retail alternative investment funds, EFAMA said they should automatically be considered non-complex financial instruments that can be sold 'execution-only'.
Tanguy van de Werve, EFAMA’s director general, comments: "We reiterate our support for the overarching objectives of the MiFID II and MiFIR framework which, for the most part, is working as intended.
"We are calling for targeted improvements such as to provide more flexibility to professional investors, to increase market transparency by mandating the creation of a consolidated tape for all financial instruments and to address data quality and data cost issues through stricter enforcement of existing rules.”
In its response, EFAMA reinforced its support for the MiFID II/MiFIR framework but called for targetted improvements for professional investors to increase market transparency.
As a priority, EFAMA proposes revisions to the level-one texts only with regards to the issues raised around ‘semi-professional’ investors and opt-outs for professional investors for certain requirements.
EFAMA indicated that these revisions can be made by way of a more flexible interpretation of the level one framework via targeted amendments to the implementing directive and regulations.
The association further notes that changes should be made to the guidelines and Q&As of the European Securities and Markets Authority (ESMA), which it says are currently seen as burdensome for the wider financial industry.
Creating thematic Q&A updates every year, with enough time for the industry to implement these changes, was, therefore, one of the primary suggestions from EFAMA.
Capital markets and infrastructures
Regarding its response to capital markets and infrastructures, the association stresses that MiFID II still fails to deliver a consolidated tape (CT) and the notion of “reasonable commercial basis” in data cost has been largely overlooked.
The association, therefore, calls on the commission to enforce the creation of a CT.
This view is reinforced by the response of the World Federation of Exchanges to the same consultation which notes that a post-trade tape of record represents the only CT which has a clear use case and would be likely to be viable in terms of costs and benefits.
Elsewhere, EFAMA drew attention to the share trading obligation (STO) and the derivatives trading obligations (DTO) and called for it to be completely removed.
“If not possible, at the very least the STO should be strictly imposed on EU securities and the DTO should be strictly relying on the application of the clearing obligation, as defined in EMIR Refit,” it explains.
Investor protection
On investor protection, EFAMA says that more flexibility should be provided to professional investors and eligible counterparties.
According to EFAMA, these types of investors should either be allowed to opt-out of many cost disclosure and investor protection requirements or should be out of scope, being allowed to opt-in.
Meanwhile, EFAMA said it does agree with the notion of 'semi-professional clients', but it does not believe that the creation of a new client category is the right way forward.
EFAMA suggested deleting the ‘10 percent depreciation alert’ as it encourages short-term behaviour, does not provide any added value for these types of clients and increases operational costs to comply with this requirement.
Regarding retail alternative investment funds, EFAMA said they should automatically be considered non-complex financial instruments that can be sold 'execution-only'.
Tanguy van de Werve, EFAMA’s director general, comments: "We reiterate our support for the overarching objectives of the MiFID II and MiFIR framework which, for the most part, is working as intended.
"We are calling for targeted improvements such as to provide more flexibility to professional investors, to increase market transparency by mandating the creation of a consolidated tape for all financial instruments and to address data quality and data cost issues through stricter enforcement of existing rules.”
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