Investment firms may provide investors with a means to buy and sell certain financial instruments in the market without undergoing any assessment of the appropriateness of the given product - that is, the assessment against knowledge and experience of the investor.

         
          
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These execution-only services are only available when certain conditions are fulfilled, including the involvement of so-called non-complex financial instruments (defined by article 19 paragraph 6 of MiFID) (Commission Staff Working Document Impact Assessment Accompanying the document Commission Delegated Regulation supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions {C(2016) 2860 final} {SWD(2016) 156 final}, 18.5.2016, SWD(2016) 157 final, p. 61).

  

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ESMA's MiFID Supervisory Briefing, Appropriateness and execution-only, 19 December 2012, ESMA/2012/851, p. 3, 4


13. In MiFID Article 19(6) (together with Article 38 of the MiFID Implementing Directive), there is an exemption from the appropriateness test for certain types of 'execution-only' business. However, this is currently only available if all of the following conditions are met:

a. the service consists only of the execution and/or the reception and transmission of orders involving shares admitted to trading on a regulated market or in an equivalent third country market, money market instruments, bonds or other forms of securitised debt (excluding those bonds or other securitised debt that embed a derivative), UCITS and other non-complex financial instruments; and

b. the service is provided 'at the initiative of the client or potential client'; and

c. the client or potential client has been clearly informed that in the provision of this service the investment firm is not required to assess the suitability of the financial instrument or service provided or offered, and that therefore the client does not benefit from the corresponding protection of the relevant conduct of business rules; and

d. the investment firm complies with its obligations under Article 18 of MiFID (conflicts of interest).

14. Recital 30 of MiFID states that a service should be considered to be provided at the initiative of a client unless the client demands it in response to a personalised communication from or on behalf of the firm to that particular client, which contains an invitation or is intended to influence the client in respect of a specific financial instrument or specific transaction. A service can be considered to be provided at the initiative of the client notwithstanding that the client demands it on the basis of any communication containing a promotion or offer of financial instruments made by any means that by its very nature is general and addressed to the public or a larger group or category of clients or potential clients.

15. Communications that are 'by their very nature general' will lead to services that are 'at the initiative of the client'. If the other conditions for providing 'execution only' business described above are met, those services will not trigger an appropriateness test. General communications could include, for example, material in newspapers and magazines or on TV, radio or billboards. Other communication methods (such as websites and internet search results) might also fall into this category, but only if they are 'by their very nature general', which may depend on the individual circumstances.

16. Therefore, firms are likely to need processes (i) to distinguish between 'complex' and 'non-complex' products (which may already have been done at the product design stage); (ii) to identify whether contact with the client is at the initiative of the firm; and (iii) to ensure that necessary warnings have been provided.
 

 


 

 

 

chronicle   Regulatory chronicle
 

 

 

 

 

 

24 September 2021

 

Consultation on Review of the MiFID II framework on best execution reports, ESMA, ESMA35-43-2836

 

28 April 2021


SMSG advice to ESMA on its Consultation Paper on “Guidelines on certain aspects of appropriateness and execution-only”, ESMA22-106-3280

 

29 January 2021

 

ESMA Consultation Paper, Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements, ESMA35-36-2159



 

 

 

IMG 0744   Documentation 

 

 

 

 

Commission Staff Working Document Impact Assessment Accompanying the document Commission Delegated Regulation supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions {C(2016) 2860 final} {SWD(2016) 156 final}, 18.5.2016, SWD(2016) 157 final, p. 61

 

ESMA's MiFID Supervisory Briefing, Appropriateness and execution-only, 19 December 2012, ESMA/2012/851, p. 3, 4

 

 

 

 

clip2   Links

 

 

 

 

Execution of orders on behalf of clients