Brexit - ESMA Statement reminds firms of their obligations on disclosure of information to clients under MiFID

On 19 December 2018, the European Securities and Markets Authority (ESMA) issued a Statement reminding investment firms and credit institutions which provide investment services (together, firms) of their obligations to provide clients with accurate disclosure on the impact on the provision of services and investors’ rights that may emerge as a result of the UK leaving the EU (Brexit).

Introduction

The UK will leave the European Union on 29 March 2019. In preparation for Brexit, ESMA has already issued:

  • an Opinion (31 May 2017) on the general principles to support supervisory convergence in the context of Brexit
  • three further Opinions (13 July 2017) which set out sector-specific principles in the areas of (i) investment firms, (ii) investment management and (iii) secondary markets to encourage consistency in authorisation, supervision and enforcement where entities, activities and functions are relocated from the UK
  • Statement (12 July 2018) on the timing of submission of requests for authorisation, reminding firms that, since there is no assurance that a post-Brexit transition period will be agreed, entities need to be prepared for the scenario where a no-deal Brexit would take place following 29 March 2019.

ESMA’s Statement to firms

In what ESMA recognises to be an “unprecedented situation”, on 19 December 2018, it issued a further Statement, addressed to UK firms that provide services to the remaining 27 Member States (EU-27) and to EU-27 firms which deal with clients based in the UK (in each case, either directly or through of a branch).

The Statement reminds such firms of their legal obligation, under MiFID II, to provide clients with information on

  • the implications of Brexit on existing and new contracts, and
  • the impact of Brexit-related measures that a firm has taken or planned.

What the Statement covers

ESMA advises that, to avoid potential disruption, firms impacted by Brexit should ensure that they provide clear information to clients whose contracts and services may be affected. Such information should be provided as soon as possible, once available, and should cover at least the following areas:

  • The Impact of the UK’s departure

    the specific implications of Brexit for clients, based on the circumstances of those clients (e.g. the specific investment services provided), should be covered, with messages focussing on the impact of Brexit for the given firm and its business, and the implications this has for the relationship between the client and the firm.

  • What actions the firm is taking

    the firm should provide information on the actions being taken to properly inform clients and prevent any detriment to them, including:
    • what organisational arrangements are in place to deal with client inquiries related to Brexit, such as the publication of FAQs for clients, contact details, helpline etc
    • contact details of the competent authority following a transfer of investment service contracts to another firm or the relocation of a firm
    • any change in the protection provided by any existing investor compensation scheme following the transfer of investment service contracts to a firm located in another jurisdiction.
  • Implications of any corporate restructuring

    the firm’s information to clients should set out the implications for clients arising from any corporate restructuring, clearly communicating and explaining relevant changes to contractual terms, taking into account any relevant national provisions, where appropriate.

  • Contractual rights

    firms should provide clients with information on any contractual and statutory rights they might have in these circumstances, including the right to cancel the contract and any right of recourse, where applicable.

    In particular, existing clients should be informed of any changes to their contractual relationship with the firm or of any impact on specific contracts that may occur as a result of the action taken by the firm (e.g. relocation to a group entity or to a branch of another group entity based in an EU-27 country).

Finally, ESMA reminds firms that any communication to clients should be clear, in plain language and should inform clients of whom they can contact for further information. The communication “should attempt not to cause undue concern”.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.