The European Securities and Markets Authority (ESMA) will need €8.7 million per year to monitor third-country firms, including UK firms, under MiFIR. This becomes clear from ESMA’s Report containing the assessment of its staffing and resources needs for the application of the new MiFIR regime.

This report is published following the changes to MiFIR regime for the provision of investment services and activities in the EU by third-country firms, introduced by the Investment Firms Regulation (IFR).

ESMA is considering two possible scenarios: one in which 880 firms apply for registration in the ESMA register and another scenario in which a lower number of firms (550) apply for registration. Such figures may need to be further refined should the Commission decide to undertake an equivalence assessment of any third country (e.g. the United States, Switzerland, Japan, Singapore, etc).

The estimates are:

• Scenario 1: A total cost of €8.7M per year for monitoring 880 firms; and
• Scenario 2: A total cost of €5.9M per year for monitoring 550 firms.

Where does the 880 number come from? In the first scenario, ESMA estimates that 40% of the 2,200 UK firms passported in the 27 Member States will actually register under the new MiFIR regime. This would set an initial estimation of 880 UK firms interested in benefiting from the new MiFIR regime if the EC recognises the equivalence of the UK.

Scenario 2 considers a number of 550 UK firms (only 25% of UK passported firms would therefore apply for registration in the ESMA register).

The revised MiFIR regime for third-country firms includes strengthened registration requirements and a significant reporting flow from third-country firms to ESMA, on an annual basis, and it gives ESMA additional powers to request information as well as to temporarily restrict or prohibit the provision of investment services or activities in the Union by a third-country firm.

Indeed, third-country firms providing investment services and activities in the Union will be required to report, on an annual basis, granular information to ESMA on their activities in the Union such as:

• information about the scale and scope of such activities,
• specific figures regarding their dealing on own account and underwriting and placing activities,
• the turnover and aggregated value of the assets corresponding to their activities in the Union,
• their investor protection and risk management arrangements, their governance arrangements and
• any other information necessary to enable ESMA or the competent authorities to carry out their tasks in accordance with MiFIR.

ESMA will have to communicate the information annually received from third-country firms to the NCAs of the Member States where a third-country firm provides investment services or performs investment activities.

In addition to the existing ESMA’s power to withdraw the registration of a third-country firm in the ESMA register, the revised MiFIR third-country regime gives the regulator the power to temporarily prohibit or restrict the provision of investment services or activities in the Union by a third- country firm under Article 46 of MiFIR where:

• the third-country firm has failed to comply with product intervention measures taken by ESMA or the EBA or the competent authorities of a Member State under Articles 40 to 42 of MiFIR; or
• the third-country firm has failed to comply with its annual reporting obligations to ESMA; or
• the third-country firm has not cooperated with an investigation or an on-site inspection carried out by ESMA.

Finally, Article 49 of MiFIR gives ESMA the power to withdraw the registration of a third-country firm in circumstances in which one of the following conditions applies:

• ESMA has well-founded reasons to believe that, in the provision of investment services and activities in the Union, the third-country firm is acting in a manner which is clearly prejudicial to the interests of investors or the orderly functioning of markets;
• ESMA has well-founded reasons to believe that, in the provision of investment services and activities in the Union, the third-country firm has seriously infringed the provisions applicable to it in the third country and on the basis of which the Commission has adopted the equivalence.