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Guernsey Issues Guidelines For Marketing Funds Into EU

by Jason Gorringe, Lowtax.net, London
19 August, 2014

Guernsey's Financial Services Commission (FSC) has issued guidance on the European Union's Markets in Financial Instruments Directive II (MiFID II), which will amend rules for firms undertaking relevant investment services business with individuals or entities located in the EU.

MiFID II will govern those firms that provide defined investment services and products in the European Union (EU) as well as in Iceland, Liechtenstein and Norway (as members of the European Economic Area (EEA)). It covers investment banks, portfolio managers, stockbrokers and broker dealers, corporate finance firms, many futures and options firms, and some commodities firms.

The existing Directive does not provide a harmonized approach to non-EU investment firms (so-called "Third Country Firms") providing investment services to, or for, EU clients. Instead, it is left to EU member states to impose limits on such services, subject to the general requirement under EU law not to grant a Third Country Firm more favorable treatment than an EU firm. In most member states, there are restrictions and requirements on a Third Country Firm offering or promoting investment services.

The European Union has updated MiFID in response to the global financial crisis. The Commission, Parliament, and the Council reached agreement on the texts for the new Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) earlier this summer, and the two documents were published in the EU Official Journal on June 12, 2014.

MiFID II will give member states the power to allow a Third Country Firm to provide investment services to specific types of professional clients, as defined in Section II of Annex II to MiFID II (Elective Professional Clients), and Retail Clients. The Third Country Firm will need to establish an authorized branch in the relevant member state and comply with its rules on MiFID II. Once authorized, the branch will not be able to provide services to Retail Clients and Elective Professional Clients in any other member state.

However, it will be permitted to provide services to "Professional Clients" and "Eligible Counterparties" (as defined in the Directive) across the Europe Union. A Third Country Firm will be able to do so without having to establish a branch in the EU but will have to become registered with the European Securities and Markets Authority (ESMA). Comprehensive guidance on the regime is set out in the document issued by the Commission.

The Guernsey regulator has begun working with industry bodies and engaging with EU officials to consider the approach required to address the issues resulting from MiFID II. It said that these negotiations with EU leaders will build upon the work undertaken during the implementation of its Alternative Investment Fund Managers Directive (AIFMD) regime.

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