ESMA Issues Guidelines on Reverse Solicitation

The authority reminded financial firms of the MiFID II requirements on reverse solicitation.

The European Securities and Markets Authority (ESMA) addressed the issues related to a few questionable operations by the companies around reverse solicitation in the region. The regulatory authority mentioned that the services provided by a third-country firm to the clients in the EU region “should not be deemed as a service provided at the own exclusive initiative of the client.”

According to the official announcement, ESMA warned that investors may lose protection under the EU rules if they use services of an investment service provider that is not authorized under EU and Member States’ law.

The recent announcement by the regulatory authority came after the end of the UK’s transition period on 31 December 2020. ESMA mentioned that some companies are trying to find a way around the MiFID II requirements by making some changes in their general clauses.

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“ESMA reminds firms that where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client. This is true regardless of any contractual clause or disclaimer purporting to state, for example, that the third-country firm will be deemed to respond to the exclusive initiative of the client,” the regulator mentioned.

ESMA and Brexit

Brexit had a massive impact on financial firms across Europe and the UK as many brokers are still trying to figure out solutions to the regulatory problems caused by the transition. In 2020, ESMA proposed changes to the reporting regimes under MiFIR. ESMA addressed the recent issues to clear doubt regarding reverse solicitation rules in the region.

“With the end of the UK transition period on 31 December 2020, some questionable practices by firms around reverse solicitation, where the product or service is marketed at the client´s own exclusive initiative, have emerged. For example, some firms appear to be trying to circumvent MiFID II requirements by including general clauses in their Terms of Business or through the use of online pop-up ‘I agree’ boxes whereby clients state that any transaction is executed on the exclusive initiative of the client,” the authority mentioned in the official announcement.

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