The MiFID II Quick Fix is relevant for all investment firms and banks and AIFMs with the permission to provide investment services. The changes to the legal framework of MiFID II include (i) an easing of the disclosure and reporting requirements of investment firms in relation to professional clients and eligible counterparties, including with respect to cost transparency, periodic reporting and product governance and (ii) a revision of the regime for position limits in commodity derivatives.
The main changes can be summarized as follows:
- Electronic method of communication: The default method for investment firms to communicate with their clients will be electronic. Nevertheless, retail clients can elect to continue receiving information on paper.
- Exemption from disclosure obligations regarding costs and charges: MiFID II gives the client the right to gain insight in the costs and charges related to the provision of investment services. The Quick Fix provides for an exemption to provide professional clients and eligible counterparties with information on costs and charges in case that investment services other than investment advice or portfolio management are provided. Furthermore, there will be an exception to the ex ante cost transparency requirement for contracts for the purchase or sale of a financial instrument concluded by means of a distance communication technique, which prevents the information on costs and charges from being provided in advance.
- Periodic post-transaction service reports: Investment firms are no longer required to provide periodic reports to professional clients and eligible counterparties. However, professional clients will still have the possibility to opt-in.
- Exemption for cost-benefit-analysis in the case of switching of financial instruments: When providing investment advice or portfolio management, investment firms are required to perform a cost-benefit analysis in the case of switching of financial instruments. The provision of cost-benefit analyses is burdensome for investment firms, as professional clients tend to switch often. Therefore, professional clients will be exempted from these requirements unless they expressly request such analyses.
- Exemptions from product governance rules: Under the product governance requirements introduced by MiFID II, an investment firm must apply a product approval process (the so-called PARP) as part of the development and/or distribution of any type of financial instrument and apply periodic reviews to it. The Quick fix introduces two exemptions from the product governance requirements. The first exemption will apply to investment services provided in respect of bonds without embedded derivatives other than an early redemption clause. The idea behind this is that these bonds can generally be considered as safe and simple products suitable for non-professional clients. The second exemption entails that the product governance requirements will no longer apply to financial instruments that are only traded or distributed among eligible counterparties.
- Bundling of research: In the context of MiFID II, the question whether investment firms could (continue to) receive research services (or research) from brokers as non-monetary remuneration was the subject of much debate. The long-standing practice of bundling services and fees of brokers would conflict with the obligation of the investment firm to act in the best interest of the client. Amendments following from the Quick Fix to the research requirements will allow firms to bundle costs for research and execution with respect to small and mid-cap issuers.
In respect of commodity derivative requirements, the following main changes are applicable:
- The position limit regime: The position limit regime has proved to be unfavourable for the development of new commodity markets, nascent commodity markets should be excluded from the position limit regime. Therefore, position limits should only apply to critical or significant commodity derivatives that are traded on trading venues, and to their economically equivalent OTC contracts. Critical or significant derivatives are commodity derivatives with an open interest of at least 300 000 lots on average over a one-year period. Securitized commodity derivatives will be explicitly excluded from position limits.
- Hedging exemption: MiFID II does not allow hedging exemptions for any financial entities. The Quick Fix introduces a hedging exemption for financial entities that trade on behalf of non-financial entities in a predominantly commercial group.
- Ancillary activities: The ancillary activity exemption under MiFID II enables certain market participants to be active in emission allowance markets without having to be authorised as investment firms, provided certain conditions are met. Following the Quick Fix, market participants that rely on the exemption, should only be required to perform a simplified ancillary activity test.
It is relevant to note that the MiFID II Quick Fix does not make the (more general) review of MiFID II redundant, and this is an ongoing process. However, the aim of the European Commission is to use the Quick Fix to alleviate the administrative burden on investment firms in the short term. A MiFID II/ MiFIR review proposal is to be expected, and is likely to cover amongst others investor protection, corporate governance obligations, pre- and post-trade transparency and consolidated tape.
The deadline for transposition of the MiFID Quick Fix already ended on 28 November 2021 and the Netherlands has to apply the MiFID Quick Fix rules as of 28 February 2022. However, this deadline was not met by the Dutch legislator. As part of the implementation of the MiFID Quick Fix, the Dutch Ministry of Finance published a draft implementation Act for consultation as of 5 October 2021. The consultation ended on 16 November 2021. The draft implementation Act has been submitted to the Council of State for advice on 12 April 2022. On 23 May 2022, the Council of State advised to submit the draft implementation Act to the House of Representatives. To date, no legislative proposal is submitted to the House of Representatives yet. The Dutch implementation of MiFID Quick Fix is therefore still pending.
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