ESMA is set to gather public feedback on the license passporting rules
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The European Securities and Markets Authority (ESMA) is seeking to strengthen the provisions around passporting of financial service licenses. The regulatory body will do this by encompassing new rules in the Markets in Financial Instruments Directive (MiFID II).
ESMA invites feedback on license passporting
License passporting enables investment companies to seek financial service licenses from any member of the European Union. The firms can then passport these licenses and use them to provide financial services within the 27-country bloc.
The financial markets regulator in the European Union now wants companies that seek this form of licensing to be more specific in the details that they share with the regulator. If the changes to this licensing are approved according to the suggestions by ESMA, investment firms will have to offer marketing services, as it will be used within the passported EU member state.
The changes include the language that the customer can use to air their grievances and complaints as well as the active markets where these investment firms will use the passport in question. There will also be a category of the targeted clients and the internal organizations discussing the cross-border activities of the company.
The regulatory body for the EU will also halt consultation on the proposed ruled on February 17, 2023. It will consider all the public feedback gathered in the matter in the second quarter of next year. A final report on the matter will be released by the end of 2023.
Tightening the regulatory gap
This proposal comes after the EU regulatory body said it was concerned about how National Competent Authorities (NCAs) conducted cross-border activities. The regulator has reviewed the supervision of six authorities.
The regulator noted that the cross-border element in investment services was a critical matter within the single market of financial services because it could promote competition and make the offer readily available to more consumers that can select from the large number of firms and investment opportunities.
The Cyprus Securities and Exchange Commission that is in charge of multiple brokerage firms has already received recommendations from ESMA to raise the amount of human resources needed to supervise cross-border services and boost the supervisory activities in monitoring and enforcement of compliance.
It further added that ESMA and NCAs had addressed the increase in cross-border activities to retailers under the MiFID II regime. However, given the increase in cross-border activities, there was a need for investment firms to use NCAs to become more focused on supervising cross-border activities and cooperation.
“A development of cross-border activities which is not accompanied by increased supervisory focus risks undermining investors’ trust and backfiring on the achievement of the single market,” the regulator added.
