In what will feel like unusual good news for compliance departments across Europe, ESMA’s recent publication has questioned the efficacy of best execution (including RTS 27 and 28) reporting and is suggesting a thorough review of whether it is needed at all in future. This follows on from many of our CFD broker clients having great difficulty with preparing these reports (see our article Why is RTS 27 so hard?).
ESMA’s report states that best execution “reports are rarely read by investors, evidenced by very low numbers of downloads from their website. It is therefore assumed that investors cannot or do not make any meaningful comparisons between firms on the basis of this data”.
Such analysis has led to ESMA to consider whether it was appropriate to suspend best execution reporting requirements during the crisis caused by the pandemic, noting that such a measure would “free up resources currently used for production of the report, without requiring firms and venues to invest in costly implementation…[and will] not lead to a decrease of consumer protection since investors currently do not read the reports at all”.
ESMA may be heading in a different direction on this requirement noting that if brokers don’t prepare the reports it will not lead to a decrease of investor protection since investors currently do not read the reports at all and buy-side firms receive the relevant information through other means. Glimpses of an entire suspension of the requirements are being suggested to the European Commission by ESMA as part of the MiFID II review coming up in 2021.
This follows ESMA’s relief earlier in the year where it clarified for market participants its expectations when it comes to best execution obligations during the 2020 global pandemic.
Acknowledging the challenges the health crisis presented, ESMA provided an extension for reporting where execution venues are unable to publish RTS 27 reports to ‘as soon as reasonably practicable after the deadline and no later than by the following reporting deadline’.
CySEC promptly confirmed it would follow ESMA’s lead with the publication of Circular C375 extending reporting deadlines.
In guidance to regulators within the EU, ESMA asserted that regulators should not prioritise supervisory action against execution venues and to apply a risk-based approach in the exercise of supervisory powers in their day-to-day enforcement of RTS 27 and 28 especially when it comes to deadlines.
Whilst we await the outcome of ESMA and the European Commission’s review of the best execution requirements, it is important to continue to comply with them, and take comfort that the difficulty experienced with this compliance requirement may end sooner rather than later. If you are needing assistance, don’t hesitate to reach out to TRAction to see how we can assist you with our Best Execution Monitor and RTS27/28 preparation services.