ESMA conducted a peer review on how national regulators supervise and enforce the MiFID provisions relating to investment firms’ obligation to provide best execution, or obtain the best possible result, for their clients when executing their orders.
ESMA found that the level of implementation of best execution provisions, as well as the level of convergence of supervisory practices by NCAs, is relatively low. In order to address this situation a number of improvements were identified, including:
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Prioritisation of best execution as a key conduct of business supervisory issue
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The allocation of sufficient resources to best execution supervision
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A more proactive supervisory approach to monitoring compliance with best execution requirements, both desk-based and onsite inspections
The majority of authorities which were subject to this Peer Review appear still to use the execution of shares (probably the most liquid market) on the relevant domestic market as a good proxy for the assessment of best execution. In one case, it appears that national legislation favours the execution of orders on the domestic market and, in effect, exempts investment firms from searching for the best execution.
The best execution of orders invariably seems to be interpreted in terms of best price and not with regard to the analysis of the other execution factors, even in markets for which there is a certain level of dispersion and where several execution venues exist. Mostly, the CAs limit their supervisory approach to verifying whether an execution policy exists (this is verified at the moment of authorisation or in the course of on-site visits/inspections) and contains the information required under MiFID1. There appears to be little rigorous scrutiny as to whether these policies are tailored to the class of
The review was conducted on the basis of information provided by 29 NCAs and complemented by on-site visits to the NCAs of France, Liechtenstein, Luxembourg, Malta, Poland and Spain.
Press release
Peer Review Report
© ESMA
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