Reverse solicitation, marketing and the distribution of funds

The exemption in Article 42 MiFID II

Reverse solicitation is the legal space in which most of Lugano's business with Italian private clients now takes place. Article 42 MiFID II provides that where a retail or elective professional client established or situated in the Union initiates at its own exclusive initiative the provision of an investment service or activity by a third-country firm, the requirement of a branch under Article 39 does not apply to the provision of that service or activity by the third-country firm to that person. The exemption extends to relationships specifically relating to the provision of that service. It does not entitle the third-country firm to market new categories of investment products or services to that client otherwise than through the branch.¹ Article 46 paragraph 5 MiFIR contains a parallel rule for professional clients and eligible counterparties, and Article 21c paragraph 3 CRD and Article 61 MiCA follow the same pattern for core banking services and for services in Kryptowerte und Digital Assets.² The Italian provisions in Articles 28 and 29-ter TUF do not repeat the exemption, because it applies directly as a limit on the branch requirement that Italy has introduced under Article 39 MiFID II. For a Lugano bank the consequence is that a relationship opened because an Italian resident came to Lugano, asked to open an account and asked for a mandate falls outside the branch requirement. The bank may perform the service it was asked to perform and any service specifically related to it. It may not use the relationship to sell other categories of products, and it may not solicit the client or prospective clients in Italy.

ESMA's strict reading

ESMA has interpreted the exemption narrowly since the end of the British transition period, when many firms in the United Kingdom tried to retain clients in the Union by relying on it. In its public statement of 13 January 2021 ESMA declared that every means of communication, such as press releases, internet advertising, brochures, telephone calls or face-to-face meetings, must be considered in determining whether the client's initiative is exclusive. This applies whoever issues the communication: the thirdcountry firm itself, an entity acting on its behalf or an entity with close links to it. ESMA added that the assessment must be made regardless of any contractual clause or disclaimer stating, for example, that the firm will be deemed to respond to the exclusive initiative of the client.³ ESMA has since repeated that the assessment must be made service by service and product by product, so that a valid initiative for one service does not cover the next.⁴

ESMA's guidelines on reverse solicitation under MiCA, published in final form on 30 December 2024 after a consultation from January to April 2024, apply the same thinking to Kryptowerte und Digital Assets. They describe the exemption as very narrowly framed, require the client's initiative to be explicit, permit the provider to offer further products only if they are of the same type as the original one, and treat the exemption as limited in time.⁵ The guidelines do not bind the interpretation of Article 42 MiFID II, but they show the direction of European supervisory practice. An Italian supervisor or prosecutor examining a Lugano relationship will apply a comparable standard.

Notes

1. MiFID II, Art. 42, as quoted and applied in ESMA, Public Statement ESMA35-43-2509 of 13 January 2021 (above). ↩
2. MiFIR, Art. 46 para. 5 subpara. 3; MiCA, Art. 61. For Art. 21c para. 3 CRD see the previous section. ↩
3. ESMA, Public Statement ESMA35-43-2509 of 13 January 2021 (above). ↩
4. Michael Huertas (PwC Legal), Revisiting ESMA's supervisory expectations on reverse solicitation, September 2022, https://legal.pwc.de/content/services/regcore-client-alert/pwc-revisiting-esmas-supervisory-expectations-on-reverse-solicitation.pdf. ↩
5. Clifford Chance, The reverse solicitation exemption under MiCA, January 2025, https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2025/01/the-reverse-solicitation-exemption-under-mica.pdf. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.