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ESMA Statement on the application of MiFID rules of conduct when selling financial instruments that may be eligible for bail-in under the BRRD

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The Bank Recovery and Resolution Directive – Directive 2014/59/EU, which was transposed in Austria by the Bank Recovery and Resolution Act (BaSAG – Bankensanierungs- und Abwicklungsgesetz), introduced the possibility to make use of the bail-in instrument in the event of resolution. The Financial Market Authority, in its capacity as the national resolution authority, may now reduce the eligible liabilities of an institution, or convert them into own funds and consequently call the existing owners and creditors of an institution that is in crisis to account (bail-in).

Against this context the European Securities and Markets Authority (ESMA) published a statement on 2 June 2016 addressed to credit institutions and investment firms entitled “MiFID practices for firms selling financial instruments subject to the BRRD resolution regime”.

In the statement, the ESMA emphasises the necessity to comply with the relevant MiFID conduct rules, and in particular advises about the following important points:

  • Up-to-date, complete and comprehensible information must be made available to investors, in particular to explain the potential risk entailed in relation to a bail-in.
  • Any conflicts of interest, in particular those arising in conjunction with issuing by the firm itself of financial instruments that can be affected by a bail-in, must be appropriately managed.
  • It must be ensured that the product offered is both suitable and appropriate for the investor. In the case of selling of financial instruments that are eligible for consideration for the purposes of a bail-in this may lead to the necessity to collect far more detailed information from customers.

The full text of the ESMA Statement can be found via the following link:

https://www.esma.europa.eu/sites/default/files/library/2016-902_statement_brrd.pdf