The European Securities and Markets Authority has published Technical Advice on the impact and functioning of the product intervention rules in the Markets in Financial Instruments Regulation. MiFIR gives ESMA powers temporarily to prohibit or restrict the marketing, distribution or sale of financial instruments or types of financial activity. The European Banking Authority has similar powers in relation to certain structured deposits. National regulators of EU Member States are able to impose permanent product intervention measures. ESMA's Technical Advice to the European Commission is on the functioning of the MiFIR provisions and their impact, taking into account its experience and the feedback from market participants to its Call for Input last year.
Using its powers, ESMA imposed a temporary prohibition on the marketing, distribution or sale of binary options to retail clients from July 2, 2018. ESMA's first restrictions on the marketing, distribution and sale of CfDs to retail clients applied from August 1, 2018. Both measures were extended numerous times. The temporary restrictions expired on July 1, 2019 for binary options and on July 31, 2019 for CfDs in light of the permanent measures that national regulators across the EU had implemented.
ESMA makes the following main recommendations:
- The product intervention powers of ESMA and national regulators should extend directly fund managers, i.e. to management companies of Alternative Investment Firm Managers and Undertakings for the Collective Investment in Transferable Securities. This aims to mitigate against the risk of regulatory arbitrage between MiFID investment firms and fund management companies, which are regulated under other legislation.
- A new power for the Commission to make legislation consolidating pan-EU product intervention measures and making them permanent. This would enhance convergence and ensure a level playing field across the EU. ESMA's report highlights certain instances in which national measures are different from ESMA's measures, such as the U.K. Financial Conduct Authority's extension of the restrictions for CfDs to CfD-like products.
If it is not possible to introduce such a mechanism, ESMA argues that it should be given the power to further extend temporary measures for 18 months. The MiFIR provisions on this point have already been amended, providing ESMA with the ability to review a prohibition or restriction at least every six months, and following at least two consecutive renewals, to impose an annual renewal. However, those amendments will only apply from January 1, 2022.
- The European Commission to issue guidance clarifying the application of product intervention measures implemented by national regulators for firms acting on a cross-border basis, when those national measures overlap.