Reverse Solicitation Gets Notice from ESMA

The Financial Commission / Media posts / Reverse Solicitation Gets Notice from ESMA

Following the completion of Brexit negotiations and the “divorce” of the UK and European Union without clear guidelines on financial services cooperation, including passporting rights, the European Securities and Markets Authority (ESMA) published a notice today regarding reverse solicitation by financial firms of European residents.

The notice deals with “reverse solicitation, where the product or service is marketed at the client’s own exclusive initiative, have emerged. For example, some firms appear to be trying to circumvent MiFID II requirements by including general clauses in their Terms of Business or through the use of online pop-up “I agree” boxes whereby clients state that any transaction is executed on the exclusive initiative of the client.”

As such, the regulator is reminding firms of current MiFID II requirements “where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client”.

The regulator indicated that “regardless of any contractual clause or disclaimer purporting to state, for example, that the third-country firm will be deemed to respond to the exclusive initiative of the client”. As such, only firms licensed in the country or jurisdiction in Europe can solicit clients within mainland Europe.

It remains to be seen if any passporting rights or other provisions to ease the regulatory burden on UK and EU financial firms will be negotiated by governments in the near future to allay any current concerns and save time and resources for any possible license or regulatory approvals to continue doing business with EU residents.

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