Review of the MiFID II framework

AMAFI responded to the European Commission’s consultation on the review of the MiFID II framework (AMAFI / 20-32). Repeating many of the proposals included in the memo that it released in early 2020 (AMAFI / 20-03), AMAFI pinpointed the issues where adjustments to the framework are felt to be needed. The goals are to ensure that European markets have the capacity to contribute sufficiently to financing the European economy, to introduce greater proportionality and to better reflect the specific features of the wholesale market, for which the challenges of building an integrated EU market are both real and immediate.

Investor protection

In terms of issues involving product governance and cost and charge disclosures, AMAFI stressed the need to simplify the framework as much as possible and introduce more proportionality by type of financial instrument and customer category, particularly to accommodate the requirements of the wholesale segment. While rejecting the option of introducing a new intermediate category for customer classification, given the difficulties that this would raise in terms of adjusting systems that were extensively modified only recently, AMAFI put forward two major proposals. First, it proposed that retail customers should be permitted to access all products – French and foreign – reserved for professional customers if they conduct a transaction worth over €100,000. The other proposal was to review the MiFID II opt-in procedure, which allows retail customers to be treated as professional customers, by enabling the procedure to be offered by a financial institution and by making the implementation criteria more operational.

AMAFI also expressed major reserves over proposals to set up an EU-wide product database and introduce an outright ban on inducements, which could disrupt the marketing of financial products in Europe.

 Paying for research

AMAFI stressed the need to reform the inducements regime for the financing of research. In particular, it recommended introducing proportionality for SMEs and mid-tier firms, revising the procedures for trial periods and allowing issuer-sponsored research to be treated as investment research under MiFID II subject to certain requirements. Conversely, AMAFI said that it does not consider that sustainable and appropriate business models, consisting in having research fully or partially funded by third parties, market operators or public money, can be implemented. The economic balance must be struck between stakeholders with an interest in developing financial research: investors on one side, issuers on the others.

Market structure

AMAFI voiced support for introducing a European consolidated tape (CT), which could provide useful services to some market participants. The goal would be to phase in real-time pre- and post-trade transparency for equities and post-trade transparency for ETFs and bonds. The CT operator could be financed through a reasonable contribution from investment firms and management companies, which would be offset by the savings generated by the new mechanism. However, AMAFI emphasised that the establishment of such a system should not call into question fundamental MiFID II-MiFIR principles such as best execution or market transparency. In addition, the introduction of a CT should not be seen as a way to solve the question of the cost of market data, which needs to be addressed specifically, as this is the only way to provide an effective response to an increasingly crucial issue for market participants.

AMAFI also underlined the need to properly apply the provisions on non-discriminatory access to trading venues and central counterparties in order to lower transaction costs