Changes to the information requirements
The proposed amendments to MiFID II are here
The current position, whereby information may be sent out in a durable medium, but by default must be on paper, will come to an end. In future, all information which firms are required to send to clients and potential clients should be in electronic format. Retail clients will be able to request the information on paper, in which case the firm will have to comply, free of charge, and keep a record of the request.
Costs and charges disclosures – no relief for portfolio managers
Firms will not have to provide the ex ante costs and charges information currently required under MiFID to professional clients and eligible counterparties – but (and it's a big but) this relief will not extend to investment advice and portfolio management.
Where an agreement to buy or sell a financial instrument is by way of distance communication, firms will be able to provide the costs and charges information in an electronic format without undue delay after the conclusion of the transaction, provided the client has agreed to receive the information this way, having been given the option of delaying the conclusion of the transaction until after it has received that information.
Ex-post reporting – periodic reports (including relief from 10% loss reporting)
The default position will be that firms will not have to provide periodic reports on the service (including the costs associated with that service) to professional clients and eligible counterparties. Professional clients will be able to 'opt-in'.
This relief will extend to the 10% portfolio loss reports which portfolio managers currently have to provide (subject to the right of the professional client to 'opt-in').
Suspension of best execution reports – for execution venues, but not firms
At the moment, trading venues and systematic internalisers for financial instruments which are subject to the MiFIR share and derivatives trading obligations, and every execution venue for other financial instruments, must publish periodic reports on the quality of execution on the venue, containing details set out in RTS 27.
ESMA issued a public statement at the end of March 2020 urging national competent authorities not to prioritise supervisory action against execution venues in respect of meeting deadlines for their RTS 27 reports, nor against firms in respect of their 'RTS 28' best execution reports.
Under the 'Quick Fix' directive, the requirement for execution venues to publish their RTS 27 reports will be suspended for a period (the text proposes until 2 years after the amending directive comes into force). This will allow the Commission more time, within the full MiFID review in 2021, to decide whether the obligation should be dropped permanently.
Significantly, no corresponding suspension is proposed in relation to the requirement for firms to publish their RTS 28 best execution reports, even though they were subject to ESMA's public statement (see above).
Suitability assessments – product 'switching'
Firms that provide investment advice or portfolio management services involving the switching of financial products are currently required to conduct a costs benefit analysis in order to advise the clients as to whether the benefits of switching outweigh the costs. This requirement will be moved from the relevant Delegated Regulation to the Level 1 Directive but will not apply in the case of professional clients, unless they wish to opt-in.
Product governance – bonds with make-whole clauses
There will be a very narrow exemption from the MiFID product governance requirements in relation to corporate bonds with 'make-whole clauses'. These are bonds which contain a clause which requires the issuer in case of early repayment to return to the investor the principal amount of the bond together with the net present value of the coupons the investor would have received if the bond had not been called.
Energy derivatives markets
Among other things, the Commission's proposed amendments would ameliorate the position limit regime in the commodity markets (except for agricultural commodity derivatives or commodity derivatives designated as significant or critical) and exclude securitised derivatives from the position limit regime entirely. A narrowly defined hedging exemption would be introduced for firms trading for predominantly commercial groups.
Changes to research regime – small and mid-cap issuers and fixed income
The consultation draft of proposed amendment to the MiFID II Delegated Directive is available here.
The Commission proposes that firms will not have to comply with the detailed requirements of the MiFID payment for research regime in the MiFID II Delegated Directive where the research is provided to small and mid-cap issuers or in relation exclusively to fixed income instruments. A small/mid-cap issuer will be one whose market capitalisation has not exceeded EUR 1 billion during the period of 12 months before the provision of the research. Following on from that, the firm will be allowed, if it chooses, to pay for execution services and the provision of research jointly (i.e. bundling will be permitted) provided there is an agreement between the firm and the research provider identifying which part of the bundled payment is attributable to research and the clients have been informed.
This part of the package (and only this part) is subject to consultation – this closes on 4 September 2020.