MiFID II: Quick Fix Directive transposed into Irish law
The Irish regulations that transpose the MiFID II ‘Quick Fix’ Directive have been published here and will come into operation on 28 February 2022.
The Quick Fix Directive was introduced by the European Commission in February 2021 as part of the Capital Markets Recovery Package with the twin aims of supporting the economic recovery from the COVID-19 pandemic, and reducing red tape.
The Commission is separately required to carry out a detailed review of the MiFID II Directive and so the Quick Fix Directive focuses only on a small number of targeted changes that are designed to balance the need for investor protection with the need for “the smooth execution of investment decisions”.
There is no gold-plating in the Irish transposing regulations.
| KEY CHANGE FROM 28 FEBRUARY 2022 | DETAIL |
| Move to Electronic Communication | The default method of communication between investment firms and their clients will be electronic. Retail clients may still opt-in for paper-based communications. As a general matter, firms have welcomed this switch as easier to administer in the remote work environments created by COVID-19 public health measures, and electronic communications are seen as more secure and environmentally-friendly. Having said that, firms are concerned about the dual burden of the required operation of both electronic and paper based communications. |
| Product Governance: Bonds | As the Commission views bonds as a key capital-raising tool, bonds with no embedded derivative other than a make-whole clause will no longer be subject to product governance requirements. Bonds with no embedded derivative other than a make-whole clause may also be offered to retail clients. |
| Product Governance: Eligible Counterparties | Financial instruments that are exclusively marketed or distributed to eligible counterparties will no longer be subject to product governance requirements. |
| Standardised information on Costs and Charges |
Professional clients and eligible counterparties will no longer receive standardised and mandatory information on costs and charges, save where the service being 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 where a professional client switches financial instruments. Professional clients will still have the right to opt for that cost-benefit analysis to be carried out. The cost-benefit analysis requirement will continue to apply in respect of retail clients. |
| Mandatory Service Reports |
Eligible counterparties will no longer receive mandatory service reports. Professional clients will no longer receive those reports unless they specifically opt-in to receiving them. |
| Research |
The rules on research unbundling will change to allow investment firms to pay jointly for both the provision of research, and the provision of execution services in respect of small and mid-cap issuers provided that certain conditions are met, including a threshold on market capitalisation of €1 billion. |
| Best Execution Reports |
Publication of best execution reports by trading venues, systematic internalisers and other execution venues will be temporarily suspended until 28 February 2023. |
| Commodity Derivatives and Emissions Allowances: Ancillary Activity Exemption | The ancillary activity exemption will change 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 forthcoming from the Commission as to how this will work in practice. |
| Position Limits Regime will be limited | The scope of the position limits regime will be limited to critical or significant commodity derivatives (i.e. commodity derivatives with an open interest of at least 300,000 lots on average over a 1-year period) that are traded on trading venues, and their economically equivalent over-the-counter (EEOTC) contracts. Agricultural commodity derivatives and their EEOTC contracts will remain subject to the position limits regime due to their importance. ESMA will draw up list of critical or significant commodity benchmarks, and develop technical standards on how position limits should be set. |
| Exemptions from Position Limits Regime | There will be exemptions from the position limits regime for:
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