ESMA recognizes the problem of the escape of traders outside the EU

The European regulator, the European Securities and Markets Authority (ESMA), sent a letter to the European Commission. The subject was to be the future of the MiFID directive under the so-called reverse acquisition reverse solicitation), i.e. the ability to provide financial services (including brokerage) by entities registered outside the territory of the European Union to a resident who is only possible directly at the will of the client.

ESMA fears Australia?

According to European supervision, there may be concerns about investor protection, which may not be sufficient in the face of reverse acquisition. ESMA recently clarified some of the regulatory frameworks for this in a series of questions and answers (Q&A). Under the reverse acquisition system, a non-EU entity is not allowed to market new categories of investment products. Whether a given product is a new category is decided individually by the regulator on the basis of the type of instrument or the related risk. Additionally, ESMA emphasizes that the categorization of investment products should be as detailed as possible to prevent possible attempts to circumvent European regulations.

In the passage of the message sent to the European Commission, we read:

"Enable customers, and in particular EU retail customers, to interact with third-country firms in a context in which the MiFID II not applicable in their entirety could be a source of legal uncertainty and possible harm to them. Therefore, given the importance of this issue, especially in the context of the UK's withdrawal from the EU, ESMA recommends that consideration be given to reviewing the MiFID II framework to mitigate the effects of reverse sourcing. "

ESMA proposes several solutions to the problem:

• a clear commitment from third country companies to demonstrate to the supervisory authorities in the EU, upon request, of the client's initiatives;
• dispute management to the EU courts and relevant authorities, at the client's request, even in the case of reverse acquisition (in the case of using, for example, the services of an Australian broker);
• possible reassessment and interpretation of existing reverse-capture legislation;

This action clearly suggests that ESMA does not want to leave the phenomenon of outflow of customers from the EU outside its territory without any control. At this moment, the dates and the final shape of new decisions regulating this phenomenon by the European regulator are unknown.