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Markets and Securities Services | Issue 46
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Establishing a branch under MiFID II?
MiFID II will give Member States the power to
allow a third country firm to provide investment
services to elective professional clients and retail
clients, i.e. those clients who are neither eligible
counterparties nor per se professional clients.
The third country firm will need to establish an
authorised branch in the relevant Member State
(host state) and comply with the host state rules
that implement the MiFID II Directive.
As is the case with the MiFIR Passport, there are
questions over how a UK manager that manages
an AIFM could benefit under MiFID II Directive’s
third country provisions:
• The AIFMD indicates that a UK manager
authorised as an AIFM under Article 37 would
not be allowed to establish a branch under
the MiFID II Directive. Instead, the core AIFMD
services would have to be provided by an
entity authorised under the AIFMD, with the
branch of another entity (the MiFID Entity) or
its subsidiary providing the investment services
under the Member State rules implementing the
MiFID II Directive (the separate entity model).
• Assuming that a UK manager’s business
model supports the separate entity model,
the question arises as to whether investment
services are better delivered through (a) the
branch of a MiFID entity or (b) the subsidiary
of a MiFID entity or AIFM. The difference, in
practice, between a Member State’s rules
governing the branch of a third country firm
authorised under the MiFID II Directive third
country provisions and the full authorisation
provisions that would apply to the subsidiary
of a UK manager is difficult to predict. On the
face of it, the MiFID II Directive third country
provisions appear to be less onerous than the
full authorisation provisions.
• It is unclear, however, whether, in practice,
the regulatory burden for the branch of a
UK manager would be materially less than
that for a subsidiary. A branch will have
to comply with the host state rules giving
effect to many, but not all, of the provisions
in the MiFID II Directive governing conduct
of business. In this respect, it will be in
a similar position to the branch of an EU
investment firm exercising its freedom to