CESR confirms passports valid in non-Mifid states

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BRUSSELS – As expected, the Committee of European Securities Regulators (CESR) has published guidance confirming that firms located in EU member states that have not yet transposed the Markets in Financial Instruments Directive will be able to use their existing passport licence under the Investment Services Directive (ISD) regime provided that they are able to meet certain prudential systems and controls under Mifid.

CESR states that the passports of investment firms originating from late implementing Member States continue to be valid for any branch established in other Member States and for services they provide abroad without establishment. Also, firms that wish to exercise their rights under Mifid in late implementing States are allowed to do so.

This is in line with the advice the UK Financial Services Authority issued in July and confirmed later this month. For most large scale European firms located in areas which have not fully transposed Mifid into national law, this will enable them to continue business as usual provided that their Mifid programmes are sufficiently advanced. Although the larger firms will be able to meet these requirements, many more mid-sized and smaller firms, most of which have not begun to make any changes to become Mifid compliance without having an firm legal guidance for them to follow from their national regulators, will struggle.

CESR also issued a new protocol on the supervision of branches under Mifid which establishes a framework for co-operation between competent authorities under two distinct models: requests for assistance based on efficient allocation of supervisory tasks; and joint supervision conducted through common oversight programmes.

Michael Wainwright, partner at international law firm Eversheds, says: “It was only to be expected that some member states would be late in implementing the directive. The reasons for the delay will be more to do with the complexity of the subject matter, and the obstructions of the legislative process, than fundamental objections to the content of the directive. The UK is on track to implement largely on time. It is possible that some of the states with less well developed financial markets are waiting to see what approach is taken by the UK and other leading markets, before finalising their own laws.

“A number of states were years late in implementing the Insurance Mediation Directive. This has compromised its effectiveness in the short term, but it is still taking hold as states come into line. The same can be expected with Mifid but the directive is now taking hold as member states come into line.”