On 4 May 2021, the Slovak Parliament approved Act No. 209/2021 Coll.[1] (the “Act”) which amended the Securities Act[2] and certain other laws. The main goal of the Act was to transpose the IFD[3] (Prudential Supervision of Investment Firms Directive) into Slovak law. This was achieved mainly by the amendments to the Securities Act and the Banking Act[4] with the effectiveness from 25 June 2021 which mirrored the IFD in all material aspects. Class 1 investment firms now have to hold the banking authorization under the Banking Act and the investment firm licence that was sufficient for class 1 investment firms before the IFD implementation in Slovakia is thus not sufficient anymore.
In addition to the IFD transposition, with the effectiveness from 10 November 2021, Directive (EU) 2020/1504[5] was transposed into Slovak law by the Act. As a consequence, crowdfunding service providers were explicitly exempted from the obligation to hold investment firm licence under the Securities Act.
The Act has also introduced some further amendments to the Securities Act and other acts which were prompted by a need to react to certain issues in the application practice and to transpose certain EU Directives. These further legislative changes will become effective from 1 January 2022 and 1 March 2022 and thus the main goal of this information is to briefly indicate some of these upcoming amendments.
I. Changes in Supervision of Data Reporting Service Providers
With the effectiveness from 1 January 2022, the Act transposes Directive (EU) 2019/2177[6] (also reflecting Regulation (EU) 2019/2175[7]) into Slovak law. Under the above EU legislation, the authorisation and supervision of data reporting service providers is to fall under the competence of the European Securities and Markets Authority (the “ESMA”) from 1 January 2022. For this reason, the National Bank of Slovakia as a local (Slovak) financial sector regulator (the “NBS”) will no longer have its competence in this area.
Similarly, the Act also modifies certain provisions of the Act on Securities Exchange[8] on data reporting. The regulation of the data reporting service providers under Slovak law should thus be fully in line with the respective EU law from 1 January 2022.
After 1 January 2022, under MIFIR[9], the EU Commission is to be empowered to adopt delegated acts that will specify approved reporting mechanism (ARM) and approved publication arrangement (APA) which will remain under the authorisation and supervision authority of the competent authority of the EU Member State. In this respect, the Act merely refers to the applicable EU legislation and delegated acts that will be adopted in this area and does not specify any specific (Slovak) national procedure.
II. Rules for Provision of Information via Electronic Means
As a default rule from 1 March 2022, investment firms will be obliged to provide information under the Securities Act to their clients or potential clients in an electronic form. However, upon request of a retail client, an investment firm will be obliged to provide the information to such a client in paper form and free of charge; the investment firm will have to inform the retail client on this option.
Further, investment firms will be obliged to inform their existing retail clients who have been receiving the information under the Securities Act in paper form so far that the investment firm plans to implement the electronic form of information and that the information will be provided to them in electronic form in the future; such notification will need to be done at least 8 weeks before sending the information to a retail client in electronic form. Investment firms will also be obliged to inform their retail clients that they can opt for receiving the information in paper form free of charge, otherwise, the information will be sent to them in electronic form after the lapse of the above-mentioned 8-week period. No such information or notification will have to be provided to those retail clients who already receive the information in electronic form.
The Act also clarifies that where an agreement to buy or sell a financial instrument is entered into by means of remote communication which prevents the provision of information regarding the costs and fees under Article 24 (4) (c) of MIFID II, such information can be provided in electronic form without undue delay after the conclusion of the transaction, provided that the investment firm (i) has allowed the client to defer the conclusion of the transaction until the client receives this information and (ii) the client has agreed to receive the information without undue delay after the conclusion of the transaction. Such information obligation on costs and fees does not apply when providing investment service to a professional client (but this does not apply in case of investment advice and portfolio management).
The investment firm will be obliged to offer to both, professional, as well as, retail clients, the option to receive the necessary information on the offered investment service before the conclusion of the respective transaction via phone (or also in paper form in case of retail clients).
III. Less Burdensome Notification Obligations for Persons Exempted under Article 2(1)(j) of MIFID II
Persons who deal in commodity derivatives or emission allowances on an ancillary basis and are exempted from the application of MIFID II under Article 2(1)(j) of MIFID II are not required to obtain an investment firm licence for this type of their ancillary activities. Such exempted persons are currently obliged to annually notify the NBS on being exempted from the obligation to hold a MIFID II licence. From 1 March 2022, the annual notification will no longer be required; however, such persons/entities will still be obliged to notify the NBS, but at its request only, about the reason for being exempted from the MIFID II licence requirement and also to inform the NBS why their respective activity is qualified as an ancillary activity to their main activities.
IV. Exemptions from Product Governance Requirements for Certain Types of Financial Instruments
From 1 March 2022, the MIFID II product governance rules (transposed into Slovak law by Sections 71m and 71n of the Securities Act) will not apply to certain less risky types of financial instruments, in particular to:
(i) bonds that do not contain an embedded derivative other than the full repayment clause; and
(ii) financial instruments to be offered or distributed exclusively to eligible counterparties.
The main reasons that prompted this amendment were the practical application problems and the fact that the complex product governance rules in practice hindered the provision of investment services; therefore, the product governance rules should not anymore apply to the “least” risky products/financial instruments.
V. New Rules on Investment Research on Small and Medium Issuers
The Securities Act contains detailed rules on provision and ordering the investment research by the investment firms and on remuneration for such services. From 1 March 2022, the Act intends to modify these rules for the investment research on small and medium companies in order to enhance the interest of the providers of the investment research in these types of companies and thus to increase the availability of the information on such companies.
In particular, providing the investment research by third parties to the investment firm for combined fees or joint payments is to be considered as being in line with the obligations of the investment firm towards its clients if:
- an agreement was concluded between the investment firm and the provider of investment research prior to the execution of the orders or the provision of the research services, specifying which part of the combined fees or joint payments for the provision of execution of orders and the investment research corresponds to the investment research;
- the investment firm informed its client about the combined fees or joint payments; and
- the investment research covered the issuers that have not exceeded a market capitalization of EUR 1,000,000,000 during the 36 months preceding the investment research.
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This legal update was prepared and posted on 9 December 2021, it is not a legal advice and provides only a brief summary of key information concerning the topic. Certainly, please feel free to contacts us if more detailed advice is needed for your specific situation.
[1] Slovak version available at https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2021/209/20211110
[2] Act No. 566/2001 on Securities and Investment Services, as amended; Slovak version available at https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2001/566/20211110
[3] Directive (EU) 2019/2034 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU, see also https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019L2034
[4] Slovak version available at https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2001/483/20210628
[5] Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive 2014/65/EU on markets in financial instruments (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32020L1504)
[6] Directive (EU) 2019/2177 of the European Parliament and of the Council of 18 December 2019 amending Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), Directive 2014/65/EU on markets in financial instruments and Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money-laundering or terrorist financing (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019L2177)
[7] Regulation (EU) 2019/2175 of the European Parliament and of the Council of 18 December 2019 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, and Regulation (EU) 2015/847 on information accompanying transfers of funds (EUR-Lex – 32019R2175 – EN – EUR-Lex (europa.eu)
[8] Act No. 429/2002 Coll. on Securities Exchange, as amended; Slovak version available at https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2002/429/20201128
[9] See e.g., Article 2 (3) of MIFIR