How UK and Third Country Financial Institutions Relying on the Reverse Solicitation Regime under MiFID II Can Service Clients in EU Member States

Are you a UK or Third Country financial institution relying on the Reverse Solicitation Regime under MiFID II (i.e. at the client’s own exclusive initiative) to continue to lawfully service some clients in the EU Member States? 

Are you aware that some of the EU Member States have expressly disallowed reverse solicitation as a method to access local investors in their jurisdiction and some have prescribed helpful detail as to how and when reverse solicitation may be applied?

As you may know, it is also open to EU Member States to prescribe further detail as to the operation of the reverse solicitation provisions of MiFID II in a manner which is consistent with the aforementioned Directive. ESMA has in fact made recommendations to the Commission on how the reverse solicitation exemption in MiFID II could be viewed, including by requiring financial institutions to provide evidence of a client’s initiative, clarifying that reverse solicitation involving certain clients should be assessed on a transaction-by-transaction basis and considering the scope of the term “new categories of investment products and services.” ESMA has furthermore published a reminder today to financial institutions on the MiFID II rules on Reverse Solicitation.  

Post-Brexit, we have seen a number of Member States prescribe further additional detail and client category restrictions when the UK or other third-country financial institutions relies on reverse solicitation. It must be stressed that cold-calling or other forms of active marketing to new clients in the EU would not be possible under the reverse solicitation. 

In light of post-Brexit, it would certainly be helpful if ESMA can push for a more consistent application of EU acts including MiFID II in this regard, this would ensure a consistent and effective application and would assist financial institutions which are heavily impacted by this to continue their business whilst remaining compliant.

Many financial institutions will conclude that they do not currently have a choice if their business is dependent on the EU, but to rely on reverse solicitation and accept that it is a price worth paying whilst we see further clarity on how the post-Brexit regulatory environment develops.  It must, however, be noted that illegal provisions of investment services and activities in the EU or elsewhere are potentially punishable by administrative or criminal proceedings and could jeopardize investor protection.

Originally published on Linkedin.