Ireland: MiFID II: Quick Fix directive transposed into Irish law

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The Irish regulations which transpose the MiFID II Quick Fix Directive have been published here and will enter service on February 28, 2022.

The Quick Fix Directive was introduced by the European Commission in February 2021 as part of the Capital Markets Recovery Program with the dual objective of supporting economic recovery from the COVID-19 pandemic and reducing red tape.

The Commission is separately required to carry out a detailed review of MiFID II and therefore the Quick Fix Directive only focuses on a small number of targeted changes designed to balance the need for investor protection with the need for “proper execution of investment decisions“.

There is no gold plating in the Irish Transposition Regulations.

CHANGE OF KEY FROM FEBRUARY 28, 2022 DETAIL
Switch to electronic communication The default method of communication between investment firms and their clients will be electronic.

Retail customers can still opt for paper-based communications.

Generally, companies have welcomed this change as easier to administer in remote work environments created by COVID-19 public health measures, and electronic communications are seen as safer and more environmentally friendly. That said, businesses are concerned about the double burden of the required functioning of electronic and paper communications.

Product governance: obligations As the Commission views bonds as an essential tool for raising capital, bonds without an embedded derivative other than a netting clause will no longer be subject to product governance requirements.

Bonds with no embedded derivative other than a netting clause may also be offered to retail clients.

Product governance: eligible counterparties Financial instruments exclusively marketed or distributed to eligible counterparties will no longer be subject to product governance requirements.
Standardized information on costs and charges Professional clients and eligible counterparties will no longer receive standardized and mandatory information on costs and charges, except where the service provided to professional clients is portfolio management or investment advice.
Switching Investment firms will no longer be required to carry out a cost-benefit analysis when a professional client switches financial instruments.

Professional clients will always have the right to choose to have this cost-benefit analysis carried out.

The cost-benefit analysis requirement will continue to apply to retail customers.

Mandatory service reports Eligible counterparties will no longer receive mandatory service reports.

Business customers will no longer receive these reports unless they specifically opt-in to receive them.

To research The rules on research unbundling will be amended to allow investment firms to jointly pay for both the provision of research and the provision of execution services for small and mid capitalization issuers, provided that certain conditions are met, in particular a market capitalization threshold of 1 billion euros.
Better Execution Reports The publication of best execution reports by trading venues, systematic internalisers and other execution venues will be temporarily suspended until February 28, 2023.
Commodity derivatives and emission allowances: exemption for ancillary activities The ancillary activity exemption will be amended to allow national competent authorities to rely on a combination of qualitative and quantitative elements, rather than two quantitative elements.

Guidance and a delegated act will be issued by the Commission on how this will work in practice.

The position limits regime will be limited The scope of the position limit regime will be limited to critical or material commodity derivatives (i.e. commodity derivatives with an open interest of at least 300,000 lots on average over a period of one year) which are traded on trading platforms, and their economic equivalent on -the counter (EEOTC) contracts.

Agricultural commodity derivatives and their EEOTC contracts will remain subject to the position limit regime due to their importance.

ESMA will establish a list of critical or significant commodity benchmarks and develop technical standards on how position limits should be set.

Exemptions from the position limits regime There will be exemptions to the position limit regime for:
  • financial entities that negotiate on behalf of non-financial entities (ENF) in a predominantly commercial group (and only for positions that can be objectively measured as reducing the risks directly related to the commercial activities of the NFEs in the group)
  • financial and non-financial counterparties for positions resulting from transactions that they undertake to fulfill liquidity provision obligations
  • securitized derivatives

A “predominantly commercial group“for the purposes of the first exemption, a group whose main activity is not the provision of MiFID II investment services, or the provision of one of the activities listed in Annex I of the CRD IV Directive, or acting as a market maker in relation to commodity derivatives.

Regulatory technical standards on the first two derogations are awaited.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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