Draft technical standards—don’t be MiFID

Draft technical standards—don’t be MiFID

How do the latest draft technical standards (TSs) clarify the position around the revision of MiFID? Tony Katz, partner, and Puesan Lam, associate, at DLA Piper, explore the draft TSs and highlight the importance for applicant firms to plan their activities beyond the one-year horizon.

Original news

ESMA publishes final report on MiFID technical standards, LNB News 30/06/2015 129

The European Securities and Markets Authority (ESMA) has published its final report on certain draft TSs for European Directive (EU) 65/2014 on the Markets in Financial Instruments Directive (MiFID II Directive), and for European Regulation (EU) 600/2014, on markets in financial instruments and amending Regulation (EU) 648/2012 (MiFIR).

What is the background to ESMA’s draft TSs?

The Markets and Financial Instruments Directive 2004/39/EC (MiFID) was adopted in April 2004 and came into force in November 2007. On 20 October 2011, the European Commission adopted a legislative proposal for the revision of MiFID. The proposals take the form of a revised Directive (MiFID II) and a new Regulation (MiFIR) (collectively known as MiFID II) and are designed to take into account developments in the trading environment since the implementation of MiFID in 2007, including advances in technology and gaps in transparency to investors and regulators.

The text of the MiFID II Directive and MiFIR were published on 12 June 2014. This means that MiFID II will, for the most part, become applicable in December 2016 (30 months after publication).

ESMA is required to develop regulatory technical standards (RTS) and implementing technical standards (ITS) to be adopted by the Commission by means of delegated acts. ESMA published a discussion paper on MiFID II technical standards on 22 May 2014 and a consultation paper on 19 December 2014.

On 29 June 2015, ESMA published its final report which sets out its feedback statement and analysis of responses to its consultation paper. The final report also includes the final draft technical standards which covers the majority of the draft RTS and ITS on investor protection topics which ESMA is expected to develop under MiFID II.

What MiFID II provisions do the draft technical standards relate to?

The draft technical standards cover:

Authorisation requirements:

draft RTS 1—draft RTS under the MiFID II Directive, art 7(4)

draft ITS 2—draft ITS under the MiFID II Directive, art 7(5)


draft RTS 3—draft RTS under the MiFID II Directive, arts 34(8), 35(11)

draft ITS 4—draft ITS under the MiFID II Directive, arts 34(9), 35(12)

Registration of third country firms:

draft RTS 5—draft RTS under the MiFIR, art 46(7)

Cooperation between competent authorities:

◦ draft RTS 6—draft RTS under the MiFID II Directive, art 80(3)

What are the main points of the draft TSs?

Respondents were generally in agreement with ESMA’s proposed approach. However, particular points to note from the final report are:


ESMA drafted a harmonised list of information to be provided by a firm applying for authorisation under MiFID. The information required broadly reflects what is already required by the UK regulator but firms already regulated may be required to provide additional information. ESMA confirmed that that the new information requirements will only apply to new authorisations, but noted that competent authorities are required to monitor that firms comply at all times with the conditions for initial authorisation.

ESMA believes that it is important for applicant firms to plan their activities beyond the one year horizon and have therefore proceeded with their proposal to require firms to provide a programme of initial operations for the first three years (despite concerns raised that a 12 month time horizon is more appropriate). In the UK, an applicant firm is required to provide a description of its proposed business. Although no time-frame is set, as a general rule, the more complex the business, the more detail the FCA will expect to receive—for example, it is possible that some applicants may, under current rules, have to provide a programme of operations beyond the 12-month time horizon. However, the rule change under MIFID II will mean that all applicants (regardless of complexity) will need to follow the three-year rule.

ESMA has also produced a set of standard forms, templates and procedures for the notification or provision of information required at initial authorisation and where there have been changes to management body.


A few respondents noted that the requirement to specify the financial instruments to which the passporting request applies, does not derive from the MiFID II Directive, art 34 and being required to provide this information would be very cumbersome. However, ESMA noted the existing practice of this information being required. In the UK, the FCA already requires this information in their passporting notification.

ESMA has also introduced (following support from respondents) an obligation on host member states to acknowledge receipt of a passporting notification to establish a branch to the home member state and the firm in question. This should provide clarity (and potentially shorten the time-frame) on when a firm may commence operations. Currently, firms either need to wait for its home regulator to pass on the host state regulator's notification that the branch may be established or wait until two months has elapsed before the firm can commence operations via the branch.

Registration of third country firms

Some respondents suggested deleting the requirement for a written declaration issued by the competent authority of the third country which formally states that ‘the firm is subject to its effective supervision and enforcement and specifies which investment services activities, and ancillary services it is authorised to provide in its home jurisdiction’ on the basis that the process for obtaining such a statement could be arduous as third country authorities might be reluctant to issue such a statement. ESMA has amended the TSs to clarify that ESMA is not expecting a firm to declare whether they are subject to ‘effective’ supervision.

What should firms be doing as a result of the draft TSs? What should lawyers be advising their clients?

Firms who will need to be authorised under MiFID II as a result of the extended scope should be planning and implementing the steps required for authorisation with a view to submitting an authorisation application. Existing authorised firms will be taking note of the further detail provided in the technical standards in assessing the impact of the MiFID II Directive and MiFIR on the business.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.


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