ESMA updates on cross-border application of product intervention measures
In case of cross-border provision of investment services, firms have to comply with the measures that apply from the Member State in which they are authorised and also with the measures applicable in a Member State where the client is located.
The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). The update provides a new answer on the topic of product intervention, that is, on the restrictions regarding offering of CFDs to retail clients and the ban on binary options.
In particular, the update concerns the application of national product intervention measures in case of services provided on a cross-border basis. National competent authorities (NCAs) may take product intervention measures in accordance with Article 42 of the Markets in Financial Instruments Regulation (EU) No 600/2014 (MiFIR) in or from their Member State. ESMA has approved the bulk of these measures, but sometimes the restrictions differ across countries.
The question that many brokerages face is:
Which national product intervention measures should a firm apply in case of cross-border provision of investment services?
ESMA explains that, where two NCAs adopt product intervention measures that both apply in and from their Member State and that are different from each other, it is important for investment firms to comply with the product intervention measures that apply from the Member State in which they are authorised in case of cross-border provision of investment services and also the product intervention measures applicable in a Member State where the client is located.
For example, if Member State (MS) A adopts stricter measures than MS B, then firms from MS B still have to comply with the national product intervention measures of MS A in respect of any cross-border activity provided to clients in MS A.
When product intervention measures in a Member State apply from that Member State, this implies that the product intervention measures apply to firms when marketing, distributing or selling MiFID financial instruments also to clients located in third country jurisdictions, without prejudice of any local legislation and/or regulation.
In order to determine the location of the client, firms are advised to consider factors such as the habitual residence of the client based on information collected in their client-onboarding process as part of the know-your-customer assessment.
It is possible that national product intervention measures contain specific rules on the territorial scope of their application. Therefore, when providing cross-border investment services firms should ensure compliance with the applicable product intervention measures.