The European Securities and Markets Authority (ESMA) has published a Supervisory Briefing on the use of tied agents by investment firms to promote further supervisory harmonisation in the European Union.
In the Supervisory Briefing, ESMA sets out its supervisory expectations (i) for the appointment of a tied agent (vgV) by a credit institution or investment firms (institution) and (ii) for institutions that use tied agents in their ongoing activities.
The Supervisory Briefing is not binding on the national supervisory authorities.
Tied agents of investment firms are companies that provide investment brokerage, investment advice or placement business for the account and under the liability of a credit institution or investment firm. These companies do not need their own licence, but slip under the "liability umbrella" of the institution, so to speak. Nevertheless, the fulfilment of the supervisory duties must remain guaranteed. ESMA has now formulated its expectations for this.
ESMA's expectations when appointing a tied agent include, for example, that the institution understands how the tied agent will contribute to the institution's strategy, which clients the tied agent will deal with and how the institution will deal with that client. As part of the so-called on-boarding, the institution must analyse and assess the following points:
To the extent that the tied agent is authorised to hold client funds or assets, the institution must also investigate whether
ESMA imposes further requirements on the contract between the institution and the tied agent. This should contain:
This is of particular concern to ESMA if the tied agent is a legal entity whose parent company is located in a third country or if the tied agent is closely linked to an entity in a third country involved in the manufacture or distribution of financial instruments;
ESMA expects institutions working with tied agents to undertake certain measures and comply with standards in their ongoing activities. These include tied agent monitoring measures.
As required organisational measures, ESMA states that:
In addition, ESMA requires that the national supervisory authorities (such as BaFin) satisfy themselves that the institution is
In conclusion, ESMA requires action on the termination of cooperation with the tied agent.
The measures demanded by ESMA are not new in many places. They repeat or concretise regulations of MiFID II that are already standard in practice. It is striking that ESMA addresses cooperation with subsidiaries of companies in third countries at various points and wants to subject their role as tied agents to special rules. ESMA apparently sees a danger in the fact that access to the European financial market takes place via tied agents that are under the control of third-country companies. In this respect, it seems to particularly urge institutions to take such circumstances into account.