Tied Agent Passport Notification
ESMA recently kicked off a consultation on the technical standards currently applicable to the Investment Services Passport Notification under MiFID. The consultation relates to one of the pillars of the single market in Europe – the freedom to provide services. The Investment Services Passport Notification is also used when a MiFID principal firm intends to make use of tied agents across Europe.
In the context of financial services, an EU authorised firm has the right to operate within the single market simply relying on the authorisation and the supervision of its national competent authority. This right lies alongside with the freedom of establishment, according to which EU authorised firms have the right to establish themselves across Europe. The Tied Agent Passport Notification – not subject to the ongoing consultation – is used when a MiFID principal firm intends to make use of tied agents located outside of its home Member State.
This specific ESMA consultation aims principally at gathering feedback from the industry in light of the possibility to request additional information in the context of the Investment Services Passport Notification. It is in our view nevertheless one more opportunity to discuss the concept of tied agents under MiFID.
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Tied Agents Based inside and outside of the MiFID Firm Home Member State
Tied agent arrangements under MiFID have been under the spotlight for a while. As the dust settles on the ESMA supervisory briefing, issued to detail the expectations that ESMA has on both national competent authorities and MiFID firms with regards to the appointment of tied agents, we take the view that tied agent arrangements are here to stay for the foreseeable future.
On this point, it makes sense to review the principles contained under MiFID on the appointment of tied agents and the different scenarios that such appointments may trigger. More specifically, the question is whether a MiFID firm is obliged to appoint tied agents based exclusively in its home state. MiFID indeed allows firms to appoint tied agents based also outside of its own home Member State. There are of course differences in the mechanisms governing the appointment of tied agents in these two situations.
The MiFID directive receives respectively under article 34 and 35 the rights related to the freedom to provide services as well as freedom of establishment. The appointment of tied agents based in the same member state of the MiFID firm falls under the freedom to provide services scenario. MiFID firms are not limited though by the perimeter of their member state of establishment in the appointment of tied agents. When MiFID firms appoint tied agents based outside of its home member state, however, that use of tied agents will be assimilated to a request for the establishment of a branch in that host member state, triggering the freedom to establishment scenario rather than the freedom to provide services.
Investment Services and Tied Agent Passport Notification
Commission Delegated Regulation 2017/1018, containing the regulatory technical standards subject now to current ESMA consultation, defines the Investment Services Passport Notification as well as the Tied Agent Passport Notification. For what concerns the appointment of tied agents, the former is dedicated to cases where the MiFID firm intends to use tied agents located in its own member state, whilst the latter in case of tied agents established in a different member state.
Whilst the mechanism of both passport notifications is similar, with the notification to be made to the home state authority of the MiFID firm, related timelines are different. The Investment Services Passport Notification has a one-month delay whilst the Tied Agent Passport Notification instead three months. Also, separate notifications are required per each host member state in case of the Investment Services Passport Notification. Separate notifications are also required per each different tied agent instead for the Tied Agent Passport Notification.
The cross-border dynamics are different in case of tied agents based either in the same or a different member state than the principal MiFID firm. Tied agents from the same domicile will be entitled to represent the MiFID principal firm in the host member states where an Investment Services Passport Notification has been submitted for that specific tied agent. Conversely, the Tied Agent Passport Notification has as its object the use in a specific domicile of a certain tied agent. Accordingly, that tied agent should be able to represent the principal firm only in that domicile.
Conclusions
The present ESMA consultation, even though focussing exclusively on the Investment Services Passport Notification, sheds additional light on the use of tied agents by MiFID firms on a cross-border basis.
Acting on behalf only of one investment firm, the role of the tied agent is to be an extension of the MiFID firm, covering different functions delegated to it, like running a call centre, deal with complaints or else have a specific expertise in certain markets or services. The ability to represent the MiFID firm can either extend to different EU Member States, in case of tied agents based in the same domicile as the MiFID firm or else be confined to a specific EU domicile, like in the case of tied agents appointed from outside the member state of the MiFID firm.
And where the ESMA supervisory briefing pierced the veil behind the use of the tied agent for purposes of circumventing the loss of passporting rights for UK investment firms post Brexit, we continue to believe that it helped in defining the standard for the use of tied agents which MiFID firms should abide to in Europe, fostering the offer crossborder of investment services and activities.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with Tied Agent Passport Notification.