Of all the provisions of the MiFID II texts, the third country provisions have been subject to some of the most heated – and high profile – debate and lobbying. Articles have dropped in and out of different drafts at a confusing rate, and it has been difficult to keep track of the latest developments.
The term “third country” refers to jurisdictions outside the EU and “third country firms” refers to entities incorporated outside the EU, whether they do, or seek to do, business by way of a branch established in the EU, or on a cross-border basis – i.e. providing services to persons in one jurisdiction from a place of business in another jurisdiction without any establishment in the client's jurisdiction.
With the review of MIFID, the Commission has attempted to create a harmonised regime for granting access to EU markets for firms in third countries. However, the regime is limited in scope to the cross-border provision of investment services and activities provided to per se professional clients and eligible counterparties.
As regards the third country regime for retail clients and opted-up professional clients, full EU harmonisation could not be achieved, as Member States are free to continue to apply national rules. However, where Member States choose not to maintain their respective national regime, MiFID II provides for a detailed set of rules that are designed to harmonise the requirements with which the branch of the third country firm will have to comply in order to be authorised by the national competent authority of the EU Member State. To put it in the EU Commission´s words “third country firms should see this as a positive step forward as it reduces divergences across Member States and therefore the legal and regulatory costs for third-country operators”. Where a Member State makes use of this option, third country firms may not provide services to these clients other than through a branch authorised pursuant to the harmonised procedure set out in MiFID II by the respective Member State.
Third country firms dealing with per se professional clients or eligible counterparties will, on the other hand, be permitted to operate on a cross border basis either from outside the EU or (if provided for in the respective Member State and then subject to further conditions) from a branch in a Member State.
In each case, there will be a greater, formalised focus on agreements between the EU and third country regulators and the assessment of third country regimes. There is also an exclusion where a client has acted on its exclusive initiative as described below