ESMA publishes technical advice on research provisions under MiFID Delegated Directive

The European Securities and Markets Authority (ESMA) has published a final report setting out its technical advice to the European Commission on the amendments to the research provisions in the context of the Listing Act legislative package. The Listing Act amended the EU requirements in the Markets in Financial Instruments Directive (MiFID II) on how payments are made for investment research, enabling joint payments for execution services and research for all issuers, irrespective of the market capitalisation of the issuers covered by the research. EU firms will be permitted to choose whether to make joint or separate payments for third-party research and execution services. This follows the UK's approach which resulted in amended rules taking effect in August 2024. We discuss UK changes in our note, "UK allows bundled payments for third-party research and trading commissions." EU member states will have until 4 June 2026 to transpose the Listing Act changes to MiFID II. ESMA's advice relates to the changes to Article 13 of Commission Delegated Directive (EU) 2017/593, known as the MiFID II Delegated Directive, which sets out the conditions that firms have to meet under the regime that required unbundled payments for research. ESMA proposes that where an investment firm chooses to use a separate research payment account, most of the existing conditions should continue to apply. Where an investment firm pays jointly for execution services and research, ESMA's advice is to require those firms to enter into an agreement on joint payments that (i) prevents the investment firm from paying substantially more for the research component than would be the case if the firm paid directly for the research; and (ii) does not impede the firm's ability to comply with the best execution requirements.

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