The European Securities and Markets Authority (“ESMA”) is committed to monitoring follow-up actions taken by national competent authorities (“NCA’s”) to address the findings of peer reviews. The recent follow-up report published by ESMA provides an update on the actions undertaken by ten Member State NCAs further to the 2014 Peer Review on MiFID Conduct of Business rules to address deficiencies relating to fair, clear and not-misleading information, which focused on NCAs’ supervision of information and marketing communications under MiFID.
Providing fair, clear and not misleading information to clients is a corner stone for investor protection under MiFID. The 2014 Review concluded that, overall, there was a high degree of compliance by the NCA’s identified with ESMA good practices. However, ten of the NCAs were not fully applying ESMA good practices relating to the effective application of MiFID rules, i.e. around organisation, supervision, monitoring activities, thematic work and complaints handling. These ten NCA’s are:
• Cyprus
• Denmark
• Estonia
• Greece
• Liechtenstein
• Lithuania
• Malta
• Poland
• Portugal
• Romania
The follow-up work was launched in September 2016 through letters of ESMA’s Chair addressed to the heads of the ten NCAs. ESMA’s follow up report concludes that the NCAs from Lithuania, Liechtenstein, Malta, Poland, Portugal and Romania have addressed all of the deficiencies previously identified. The remaining NCA’s from Denmark, Estonia and Greece have one deficiency remaining and Cyprus has more than one deficiency remaining, although the report notes that significant efforts have been made, in particular, by Cyprus and Greece. ESMA states that it is confident that these NCAs will address the remaining deficiencies as soon as possible and at the very latest by 3 January 2018.
By way of example, Cyprus have made some improvements relating to organisation by recruiting additional staff as the 2014 peer review found that the Cypriot NCA was understaffed to adequately supervise the marketing activities of investment firms in Cyprus. In the 2017 follow up it was noted that whilst additional staff have been recruited, there are still concerns around whether the number of new staff is sufficient for the number of investment firms to be supervised. In Liechenstein, the NCA has addressed the deficiency relating to complaints handling found in the 2014 peer review whereby it was unclear how to make a complaint and information relating to this process was not adequately provided to clients. The 2017 follow up found that this had been addressed by the NCA by including clear instructions (in two languages) on its webpage on how to make a complaint.
As in previous peer reviews and follow-up exercises, risk based approaches to supervision have been cited as the reason for not taking sufficient action in following up on the specific deficiencies identified in 2014. While a risk-based approach can fit naturally with the supervision of MiFID conduct of business rules, such an approach should be able to take into account signals relating to potential breaches by firms of their MiFID obligations. Deficiencies found are expected to be addressed bearing in mind that the supervision of one NCA may impact on other NCAs and the protection of investors beyond national borders, through the use of passported activities under MiFID.
NEXT STEPS
ESMA will continue to check on progress made by NCAs in implementing recommendations of peer reviews and to foster supervisory dialogue on MiFID rules on fair, clear and not misleading information provided to clients as well as on conduct of business rules in general.
To view the follow up report produced by ESMA, please click here and follow the link on the right-hand side of the page to download the document.
If you have any questions or need any advice on the impact of the follow-up report on your firm, Cleveland & Co, your External In-House Counsel, are here to help.
