ESMA Reviews How Regulators Enforce MiFID Rules on Misleading Information, Recommends Changes
- The European Securities and Markets Authority recommends forcing investment firms to submit all marketing material to national regulators, like CySEC, including material used for cross-border business.
The European Securities and Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term) announced that it has conducted a review on how national regulators supervise MiFID conduct of business rules on providing fair, clear and non-misleading information to clients.
The peer review focused on national regulators’ organisation, supervisory approaches, monitoring and complaints handling in relation to information and marketing communications under MiFID. The Report found that there was an overall high degree of compliance with good practices identified in these key areas.
However, the European regulator says a variety of approaches were observed, leading to "different intensity of supervision." A number of areas for improvement were identified by ESMA, including enhanced use of on-site inspections; a specific focus on conduct of business issues in firms’ risk assessments; and greater efforts to detect failings by firms in a timely manner.
The review was conducted on the basis of information provided by the national regulators in a self-assessment questionnaire and complemented by on-site visits to Cyprus, the Czech Republic, Germany, Italy, Portugal and the United Kingdom.
Steven Maijoor, ESMA chair, said: “Providing fair, clear and not misleading information to clients is essential for investor protection and should be applied consistently throughout the EU. This review is a major step forward in ensuring that progress is being made towards convergence in this area by national regulators. The report provides a thorough insight and analysis of national supervisory practices, facilitated by ESMA’s first on-site visits, and includes a number of recommendations which I urge national regulators to consider when reviewing their practices in this area."
Report's Key Findings and Recommendations
ESMA learned that while some national regulators directly supervise firms’ compliance with their Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term relating to marketing material, others rely on annual checks performed by external auditors. ESMA is concerned that the latter approach may make it difficult to detect failings by firms in a timely manner due to the successive sampling process employed by auditors and then the regulators.
The report also found that a low level of complaints and an equally low level of sanctions were reported by national regulators in the area of information and marketing to clients. Additionally, there is no precise definition of the term marketing communication in European law, therefore it needs to be further defined in order to build effective convergence of supervisory practices.
The Report identifies a number of areas for future work to promote a more coherent cross-EU application of the requirements. These include:
- Establishing more robust structures and efficient coordination and cooperation arrangements between different supervisory units
- Defining a clear set of information and marketing material to be supervised
- Assessing the frequency of monitoring of investor information and marketing
- Assessing the adequacy of monitoring the distribution channels used by firms, including in the cross-border provision of services
- Requiring investment firms to submit details of all information and marketing material to be provided, including material used for cross-border business
- Considering the use of integrated databases to assist in supervision of information and marketing to clients
- Assessing the frequency and consistency of the use of sanctions
- Assessing the implementation and effectiveness of the guidelines for complaints handling for the securities (ESMA) and banking (EBA) sectors
In addition, ESMA says it would continue its efforts, including the use of opinions, in order to promote the development of a level playing field regarding the provision of information in an understandable format to clients, as well as the quality of service.
The European Securities and Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term) announced that it has conducted a review on how national regulators supervise MiFID conduct of business rules on providing fair, clear and non-misleading information to clients.
The peer review focused on national regulators’ organisation, supervisory approaches, monitoring and complaints handling in relation to information and marketing communications under MiFID. The Report found that there was an overall high degree of compliance with good practices identified in these key areas.
However, the European regulator says a variety of approaches were observed, leading to "different intensity of supervision." A number of areas for improvement were identified by ESMA, including enhanced use of on-site inspections; a specific focus on conduct of business issues in firms’ risk assessments; and greater efforts to detect failings by firms in a timely manner.
The review was conducted on the basis of information provided by the national regulators in a self-assessment questionnaire and complemented by on-site visits to Cyprus, the Czech Republic, Germany, Italy, Portugal and the United Kingdom.
Steven Maijoor, ESMA chair, said: “Providing fair, clear and not misleading information to clients is essential for investor protection and should be applied consistently throughout the EU. This review is a major step forward in ensuring that progress is being made towards convergence in this area by national regulators. The report provides a thorough insight and analysis of national supervisory practices, facilitated by ESMA’s first on-site visits, and includes a number of recommendations which I urge national regulators to consider when reviewing their practices in this area."
Report's Key Findings and Recommendations
ESMA learned that while some national regulators directly supervise firms’ compliance with their Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term relating to marketing material, others rely on annual checks performed by external auditors. ESMA is concerned that the latter approach may make it difficult to detect failings by firms in a timely manner due to the successive sampling process employed by auditors and then the regulators.
The report also found that a low level of complaints and an equally low level of sanctions were reported by national regulators in the area of information and marketing to clients. Additionally, there is no precise definition of the term marketing communication in European law, therefore it needs to be further defined in order to build effective convergence of supervisory practices.
The Report identifies a number of areas for future work to promote a more coherent cross-EU application of the requirements. These include:
- Establishing more robust structures and efficient coordination and cooperation arrangements between different supervisory units
- Defining a clear set of information and marketing material to be supervised
- Assessing the frequency of monitoring of investor information and marketing
- Assessing the adequacy of monitoring the distribution channels used by firms, including in the cross-border provision of services
- Requiring investment firms to submit details of all information and marketing material to be provided, including material used for cross-border business
- Considering the use of integrated databases to assist in supervision of information and marketing to clients
- Assessing the frequency and consistency of the use of sanctions
- Assessing the implementation and effectiveness of the guidelines for complaints handling for the securities (ESMA) and banking (EBA) sectors
In addition, ESMA says it would continue its efforts, including the use of opinions, in order to promote the development of a level playing field regarding the provision of information in an understandable format to clients, as well as the quality of service.