The MiFID “quick fix” was introduced by the European Commission in February 2021 as part of the Capital Markets Recovery Package with amendments due to apply from 28 February 2022. The EU Council made some minor amendments to MiFID II by adopting the new Directive 2021/338 aiming to:
Support the recovery of the capital markets that have been affected by the pandemic
simplify certain existing requirements and compliance costs of investment services
eliminate distortions of competition, without compromising investor protection
Below you can find a summary of the key changes introduced with the Quick-Fix Directive.
- Financial instruments that are marketed or exclusively distributed to eligible counterparties will no longer be subject to product governance requirements.
- investment services provided for simple corporate bonds with so-called “make-whole clauses” will no longer be subject to product governance requirements. These products are in general considered safe and simple products, eligible for retail clients (if they do not include any other embedded derivatives). However, it’s worth noting that under the PRIIP regulation Make-Whole Call Bonds are classified as a PRIIP and therefore can be sold to EEA retail customers only after provision of a Key Information Document (KID). Very important note is that the point clarified by ESMA in its Q&A that non-complex bonds remain subject to product governance requirements. This means that the exemption only applies to bonds with just a make-whole clause and no other embedded derivative.
Electronic communications with clients
The default channel for firms to communicate with their clients will be switched from paper-based to electronic. Retail clients still have the right to opt-in for paper-based communication.
Costs and Charges:
- Currently the information requirements on costs and charges apply for all client categories. This will change as of February 28th, 2022, and information on costs and charges will be no longer disclosed to professional clients and eligible counterparties for the case that the services being provided do not include investment advice and portfolio management services.
- Investment firms are required to undertake a cost-benefit analysis in the activities of selling a financial instrument and buying another financial instrument or exercising a right to make a change with regard to an existing financial instrument, the so called switching of financial instruments. They are also required to inform the clients on whether the benefits of such a transaction outweigh the costs. However, firms will not be required to carry out this cost benefit analysis relating to product switching for professional clients unless those clients decide to opt in to receive this information.
- The obligation to provide clients with ex post reports on services, including type and complexity of products and the nature of services and associated costs, shall no longer apply to professional clients. However, professional clients have the right to opt-in to receive such reports, and proper records of the professional clients’ opt-in communication are to be kept.
Partial Reversal of Research Unbundling Rule
The research requirements will be adjusted in a way so that investment firms will be allowed to bundle costs for research and execution with respect to small and mid-cap issuers (with a threshold market capitalisation < EUR 1 billion). Firms must have informed their clients about the joint payments for research and execution services and must have entered into an agreement with the research provider identifying the part of the combined charges or joint payments for research and execution services that is attributable to research.
Mandatory Service Reports
Eligible counterparties will no longer receive mandatory service reports. Professional clients will no longer receive those reports unless they specifically opt-in to receiving them.
In addition to the Quick Fix ESMA launched on February 8th, 2022, a common supervisory action (CSA) with NCAs on MiFID II Costs and Charges. The aim of this action is to assess the application of the MiFID II requirements on costs and charges. The focus of the CSA will be on information provided to retail clients. NCAs will review how firms ensure that the costs and charges disclosures:
- are provided to clients in a timely manner;
- are fair, clear and not misleading;
- are based on accurate data reflecting all explicit and implicit costs and charges; and
adequately disclose inducements.
How does this “Quick Fix” affect cleversoft Services?
Our cleverGov Service is now adjusted to fit the new MiFID II requirements for Make-Whole Call Bonds.
Our Regulatory Watch is continuously monitoring updates on MiFID II and further regulatory developments.