Reverse inquiry

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To the unsuspecting, a topic to be approached with great caution but to cross-border boxwallahs with much antipicatory licking of the lips. It’s all about one’s regulatory perimeter — a topic which will bore many people to tears, but provides a luxuriant lifestyle to the kind of attorney (aka a bross-border boxwallah) who can break through that outer crust of stale, doughy tedium and into the delicious, weed-strewn details of cross-border regulation.

Now if a fellow sets herself up to provide regulated financial services in, oooh, I don’t know, say the United Kingdom, subject to and all watched over by the machines of loving grace of the Financial Conduct Authority, then musst she withhold her services from someone who reaches out from foreign shores to ask for them? Must she worry about the financial services regulations of that far-away place?

The answer question depends on the regulatory “perimeter” of that foreign jurisdiction. Normally, it will coincide with the physical borders of the country: as long as our fellow doesn’t provide her serrvices in that jurisdiction she will not be subject to its laws and regulations.

These days, the mod cons - telephony, the world-wide internet - makes it all so much harder. What if our fellow stays in England and the client stays in its jurisdiction? Where then is the business conducted?

“At the client’s initiative”

Here we consider who initiates the business. Does the client initiate the business request? What if our fellow promoted herself, advertised, in that jurisdiction? The legislation has two passages which help us. The first is Recital 85 of MiFID 2, which ponders what is to be considered at the client’s initiative:

A service should be considered to be provided at the initiative of a client unless the client demands it in response to a personalised communication from or on behalf of the firm to that particular client, which contains an invitation or is intended to influence the client in respect of a specific financial instrument or specific transaction. A service can be considered to be provided at the initiative of the client notwithstanding that the client demands it on the basis of any communication containing a promotion or offer of financial instruments made by any means that by its very nature is general and addressed to the public or a larger group or category of clients or potential clients.

The second is ESMAs Q&A, released as firms readied themselves for that great New Year’s Day push into the sun-enlightened uplands of modern securities regulation. Quoth ESMA:

According to Article 42 of MiFID II, where a retail client or professional client ... established or situated in the Union initiates at its own exclusive initiative the provision of an investment service or activity by a third-country firm, the third country firm is not subject to the requirements under Article 39.

As provided in recital 111, in order to qualify for Article 42 of MiFID II, “where a third-country firm solicits clients or potential clients in the Union or promotes or advertises investment services or activities together with ancillary services in the Union, it should not be deemed as a service provided at the own exclusive initiative of the client”.

...ESMA is of the view that every communication means used such as press releases, advertising on internet, brochures, phone calls or face-to-face meetings should be considered to determine if the client or potential client has been subject to any solicitation, promotion or advertising in the Union on the firm’s investment services or activities or on financial instruments.

See also

• Art. 42 of MiFID