ESMA Issues Copy Trading Supervisory Guidance
Posted by Colin Lambert. Last updated: March 31, 2023
The European Securities and Markets Authority has published a supervisory briefing for National Competent Authorities (NCAs) on firms offering copy or mirror trading services.
The briefing includes guidance of the qualification of copy trading as an investment service – it states that such services will fall under either portfolio management services or investment advice, both of which are in scope of MiFID II regulation – and sets out supervisory expectations with regard to MiFID II on various requirements.
These include information requirements (including on marketing communications and costs and charges); product governance; a suitability and appropriateness assessment; remuneration and inducement; and the qualifications of traders whose trades are being copied.
The briefing sets out the supervisory expectations of both ESMA and NCAs and also includes indicative questions that supervisors could ask themselves, or firms, when assessing firms’ approaches to the application of the relevant MiFID II rules.
ESMA says it and the NCAs will continue monitoring the development on this topic and “may therefore undertake other steps in the future to assure that copy trading services are provided in a manner that is consistent with the applicable MiFID II requirements and that these services are being provided in the best interest of the client”.