Tue, Mar 31, 2020

ESMA Publishes Final Report of Technical Advice to the European Commission on Inducements and Costs and Charges Disclosures

Following a formal request from the European Commission on May 23, 2019, ESMA has now published its Final Report providing advice on several technical issues stemming from MiFID II and MiFIR.

MiFID II Disclosure Requirements for Inducements Permitted Under Article 24(9) of MiFID II

ESMA encouraged the European Commission to conduct further analysis on the topic of inducements covering the following:  

  • the impact that the MiFID II inducements regime has had on the distribution of retail investment products across the Union;
  • the effects a ban on inducements would have on the different distribution models existing in the Union; and 
  • actions that could be taken to mitigate the risk of undesired consequences of an inducements ban.

The Report highlighted that the impact of the bans introduced in the Netherlands and the UK could be examined to assess the potential positive or negative effects of a ban. 

ESMA also proposed measures that the Commission could take to improve clients’ understanding of inducements. 

Costs and Charges Disclosure Requirements Under Article 24(4) of MiFID II

ESMA recommended that the MiFID II costs and charges disclosure regime should allow for more flexibility when applied to eligible counterparties and professional clients. 

This included advising that eligible counterparties should be allowed to opt-out of the entire costs and charges disclosure regime (ex-ante and ex-post). 

Whilst ESMA did recommend greater flexibility for professional clients, it said that this should be based on the type of service provided and not on which category of professional client they fall under. 
For portfolio management and investment advice services, ESMA’s guidance was clear that there should not be an opt-out and the entire costs and charges disclosure regime should apply (as it does for retail clients).

ESMA’s Final Report can be found here.

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