1. MiFID II: A Guide to Third Country Market Access

2. Agenda Background Guide Clients Content Distribution KPIs
Target categories
Examples of possible target firms

3. Background
MiFID II recasts the Markets in Financial Instruments Directive (“MiFID”), which regulates the provision of investment products and services in the EU
MiFID II will enter into force on 3 January 2018
Makes changes to existing MiFID regime rules regarding third country access
Opens up single market to certain third country firms providing services to professional clients and eligible counterparties (“ECPs”)

4. So what?
New rules will be of interest to non-EU firms and potentially UK firms who provide or would like to provide investment products and services to professional clients/ECPs in the EU
Potential work stream for existing clients (especially if UK leaves the EU)
BD opportunity for new non-EU clients

5. Guide for clients explaining the changes and possibilities

6. What does the guide cover?
Existing rules under MiFID (Directive 2004/39/EC)
No passporting rights available to third country firms
No harmonised authorisation regime for branches of third country firms - up to each Member State
Certain conditions have to be satisfied when outsourcing portfolio management for retail clients to a third country firm
New requirements under MiFID II
Third country firms may provide investment services to professional clients and ECPs on a cross-border services basis
Transitional arrangements
A third country firm may passport services from a branch established in an EU Member State to professional clients and ECPs throughout the EU.
No passport for the provision of investment services to retail clients – up to Member States
Reverse solicitation exemption
Current position under MiFID
There are no passporting rights available to third country firms under MiFID (Directive 2004/39/EC)
There is no harmonised regime for the authorisation of third country firm branches - it is up to each Member State.
If a MiFID investment firm outsources portfolio management for retail clients to a third country firm, certain conditions have to be satisfied, including that there must be an appropriate cooperation arrangement in place between the relevant supervisory authorities. If not, the investment firm must give prior notification to its regulator about the outsourcing arrangement.
New position under MiFID II and MiFIR
Passport: Third country firms may provide investment services to professional clients and ECPs on a cross-border services basis, without needing to establish a branch (Articles 46 – 49 MiFIR). This is subject to certain conditions, including that:
The third country firm’s home state must be deemed equivalent to the prudential and conduct of business requirements of MiFID II, MiFIR and CRD IV
The home state must have a cooperation agreement in place with ESMA
The third country firm must register with ESMA to be included on ESMA’s third country firm register
The third country firm must inform any EU clients of its third country status
Transitional arrangements provide that for up to 3 years post-equivalence finding, the third country firm can choose to comply with the Member State’s national regime or it can choose to register with ESMA (Article 54(1) MiFIR)
There is no passport for the provision of investment services to retail clients. Each Member State has discretion over whether to require a third country firm to establish a branch in their territory (Article 39 MiFID II). Any such branch must have sufficient capital and comply with various MiFID II requirements. No equivalence decision is needed in respect of the third country. Where a Member State does not require the establishment of a branch the third country firm would have to comply with the applicable national regime in order to provide investment services to retail clients.
Passport: If a third country firm has established such a branch, it may passport services from that branch to professional clients and eligible counterparties throughout the EU.
Reverse solicitation exemption: it is possible for a third country firm to provide investment services to all client types without a branch or ESMA registration where the transaction is at the client’s “own exclusive initiative”.

7. What have we found? France
Under current French legislation if a third country firm wishes to provide investment services, it must apply for an investment firm licence issued by the ACPR (or the AMF in the case of portfolio management companies). The third country firm must have a registered office located and business effectively run in France.
France
Ordinance no relating to the markets in financial instruments has been published which implements Article 39; the requirement to establish a branch for the provision of services to retail clients. Further legislation/implementation is awaited.
Germany
Currently, a third country firm can provide banking, financial or investment services (actively) only on the basis of a related German license of a branch or subsidiary or a license of another EU member state which is subject to a harmonised passport regime.
Draft law for the transposition of MiFID II in Germany has not yet been published (the first draft in 2015 was subsequently revoked). Due to the general approach of protecting the German market/German customers certain aspects may be transposed more strictly than in other jurisdictions ("gold plating").
The passport regime for services provided to professional clients and eligible counterparties does not exist under current German law and will probably change the German market.
Reverse solicitation under MiFID II will probably lead to changes in the current reverse solicitation regime.
We expect the passport/cross-border regime to be transposed 1:1 into German law.
Under the current regime, third country firms have two options to provide services in Poland: (i) establishing a subsidiary; or (ii) setting up a branch. The latter is limited to third country firms from the OECD or the WTO member countries. Subsidiary is subject to a licence from the Polish financial supervision authority to carry on investment activity.
Poland
While the implementation process in Poland has not started yet, it is likely that Poland will exercise its Article 39 MiFID II discretion to require third country firms to establish a branch to provide investment services to retail and elective professional clients.
Romania
Third country firms wishing to conduct business in Romania can do so by way of establishing a branch in Romania. The branch needs to follow the same prudential requirements as a local firm (e.g. have sufficient capital, proper corporate governance, comply with participation restrictions and subject itself to supervision by the Romanian FSA).
At present no Romanian legislation regulating third country market access under MiFID II has been issued or officially published.
Spain
The current Spanish legislative framework provides two options for a third country firm that wishes to conduct business:
(a)      open a branch in Spain by obtaining the Minister of Economy and Competitiveness’ authorisation, on a proposal from the Spanish Securities Market Commission. It would be possible for the branch to exercise EU passporting to carry on investment services and activities in other Member States in accordance with MiFID or CRD IV.
(b)      conduct business in Spain without a branch in Spain by applying to the Spanish Securities Market Commission for authorisation.
MiFID II has not yet been transposed into national law and so legislation / implementation is awaited, including in respect of the position regarding third country firms. UK
The current UK legislative framework  provides three options for a  third country firm that wishes to conduct business:
(a)      establish a UK subsidiary authorised by the FCA or PRA. It would be possible for the subsidiary to exercise EU passporting to carry on investment services and activities in other Member States in accordance with MiFID or CRD IV.
(b)      establish a UK branch authorised by the FCA or PRA. Assessment in prudential in nature and cooperation arrangements with the third country jurisdiction is required. An authorised UK branch of a third country firm will not enjoy EU passporting rights.
(c)      provide investment services on a cross-border basis, from the third country, without the need for FCA and/or PRA authorisation under the overseas person exclusion.
The UK has started MiFID II implementation but further legislation / implementation is awaited. The UK’s general approach is an “intelligent copy out” of MiFID within the structure of existing UK regulation.
The UK is minded not to exercise the Article 39 discretion and so third country firms will not have to establish a branch to provide investment services to retail and elective professional clients and will not get the benefit of the Article 47(3) passport.  It is likely that the overseas person exclusion will continue to apply to third country firms.
There are likely to be changes to FCA and/or PRA rules to recognise third country firms passporting under Article 46 and those that have Article 39 MiFID II branches in other member states and wish to passport under Article 47(3).

8. Who should we be targeting?
Distribute to FS clients generally on the basis of casting the net as broadly as possible, including:
Investment banks
Asset managers
Fund managers
Guide may be of particular interest to certain categories of client, including:
Non-EU firms without an authorised EU branch
Non-EU clients who currently provide MiFID services through a branch in an EU member state
Clients within scope of the new rules likely to be from small group of jurisdictions given requirement for jurisdiction to be deemed “equivalent”
e.g. Australia, Brazil, Canada, Guernsey, Japan, Jersey, Switzerland, USA

9. How can we distribute the guide and engage potential clients?
Online
CMS homepages
RegZone
Mailshots
Mailing lists
Targeted s to specific clients
Social Media
Handouts at face-to-face meetings with suitable clients

10. Face to face meetings Identify target clients
Identify particular individual at the target firm
Find a champion who can get us in (at one of the CMS offices or at a third party firm)
Send guide to identified individual at the target and try to set up meeting
Most effective.
As most potential clients are likely to be non-EU, will need to co-operate with third party firms.
We obviously have two non-EU affiliated firms that we can use (Rajah and Tann in Malaysia and Khaitan and Co in India)
We have identified the countries that are most likely to have firms with an appetite for providing investment services and products into the EU and identified the law firms in those countries that we have worked with on FS focused projects as well as the individuals within those firms who we know and who can therefore give us an introduction.
We obviously I guess the main thing is that if a foreign firm’s client is looking to do cross border work in the EU, they will need advice from local counsel on the regulatory impact as well so its in both our interests to get the clients interested in a cross-border project. But I agree it would turn on the relationship with the partners at the other law firm…

11. What countries do we propose focusing on initially?
CMS non-EU firms with an FS focus/dimension
CMS affiliated firms
India (Khaitan &Co) - Shishir Mehta
Singapore (Rajah and Tann) – Regina Lieuw
Other firms with whom we have worked on FS focused matters and the partners we worked with:
Australia (Minter Ellison) - Richard Batten
Canada (Borden Ladner Gervais) - Jeffrey S. Graham
Cayman Islands, Bermuda, Jersey and Guernsey (Appleby)
Hong Kong (Howse Williams Bowser) – Jill Wong
Mauritius (Appelby) - Muhammad Aadil Koomar
New Zealand (Chapman Tripp) – Bradley Kidd
South Africa (Cliffe Dekker Hofmeyr) – Bridget King

12. Examples of possible target clients
Nomura
Sumitomo Mitsui
Mizuho
MUFJ
Black Creek
Dundee Corporation
Mackenzie Investments
Sprucegrove Investment Management
JP Morgan
BAML
Citigroup
MFS
Franklin Templeton Investment
UBS
Credit Suisse
The clients listed on this slide are among the largest investment banks/asset managers in their respective jurisdictions or are firms we have had dealings with in the past, and so we already have a potential contact.
The former were selected because they are international firms that already provide cross border services, and so are likely to have the desire and the resources to expand their offering in Europe. They are also the most likely to have an existing client base in Europe as a result of migration of existing clients (even if they are not actively soliciting clients in Europe), so we can engage them by also offer to discuss whether their current offering/ongoing services are legitimate – given the new passport does not cover retail clients.
First State Investments
National Australia Bank
ANZ
CIMB Principal Asset Management
UOB Asset Management

13. The “opportunity” provided by Brexit
UK voted to leave the EU on 23 June 2016
High risk that UK investment firms will become third country firms under MiFID II
Likely that the UK would satisfy the equivalence requirements under MiFIR
Third country firms will lose rights of access to the UK under MiFID II and MiFIR
Third country firms with UK authorised subsidiaries will lose their right to passport into the EU
Since our team were assigned this project the UK voted to leave the EU.
There is no certainty over what will happen in the UK for the next few years. However MiFID II and MiFIR will come into force on 3 January 2018, before the UK officially leaves the EU.  Therefore MiFID II and MiFIR will apply to UK investment firms and third country firms providing services in / from the UK until any changes are made to UK regulation.
There is a high risk that, if the UK does not retain access to the EU single market:
UK investment firms will lose their passporting rights and become third country firms subject to the third country regime. Assuming there is no wholesale revision of UK regulation, it is likely that the UK would satisfy the equivalence requirements under MiFIR.
Third country firms will lose their rights of access to the UK under MiFID II and MiFIR. Third country firms that have established UK authorised subsidiaries will lose their right to passport into the EU.

14. Guide – Key Performance Indicators
KPIs for the guide will primarily relate to how often it is accessed and where from
Gather MI through website analytics and use of LawNow and similar “dotmailer” tools
Ultimately success/performance will be based on client meetings/discussions or chargeable instructions

15. Any questions? ?

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