By Christopher Walker
On 13 January, ESMA published a reminder to firms in respect of “questionable practices” around “reverse solicitation” – where a product or service is marketed at the client´s own exclusive initiative – which have seemingly appeared following the end of the UK’s Brexit transition period.
ESMA notes such practices include firms reportedly attempting 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 European regulator reminds firms of recital 111 of MiFID II “where a third-country firm solicits clients or potential clients in the [EU] 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” and that this remained accurate “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”.
Examples of solicitation communication mediums may include:
- press releases;
- internet advertising;
- brochures; or
- phone calls or face-to-face meetings
ESMA considers that all these mediums should “be considered to determine if the client or potential client has been subject to any solicitation, promotion or advertising in the Union on the firm’s investment services or activities or on financial instruments”. The update also notes firms should consider solicitation, promotion or advertisings “regardless of the person through whom it is issued: the third country firm itself, an entity acting on its behalf or having close links with such third country firm or any other person acting on behalf of such entity”.
Finally, ESMA emphasised that providing investment services without authorisation within both EU and relevant Member State financial regulatory regimes both “exposes service providers to the risk of administrative or criminal proceedings” and investors to the risk of losing “protections granted to them under EU relevant rules” (e.g. EU investor compensation schemes).
ESMA’s full Public Statement is available here.