The European framework for third-country firms

MiFID II: a Member State option for retail clients

MiFID II, adopted on 15 May 2014 and applicable from 3 January 2018, was the first European instrument to address firms from third countries in some detail. It did so in two tiers. For retail clients and for clients who ask to be treated as professionals (elective professional clients), Article 39 allows each Member State to require a third-country firm to establish a branch in its territory. The branch must then be authorized by the national authority under conditions that the directive harmonizes: cooperation agreements with the home supervisor, an agreement on the exchange of tax information that complies with Article 26 of the OECD Model Tax Convention, sufficient initial capital at the disposal of the branch, persons effectively directing it who meet fitness requirements, and membership of an investor compensation scheme.¹ Where a Member State does not exercise the option, its national rules continue to apply, and these may permit services without a branch under conditions of its own choosing.

The option in Article 39 is therefore a permission to be strict. It does not oblige any Member State to close its market, and several Member States, among them Germany with its exemption practice for third-country firms under section 2 paragraph 4 of the German Banking Act, have kept a degree of flexibility.² Italy chose the strict variant. The Federal Council's report of 2021 on the implementation of the Roadmap records that Italy decided in 2018, in the context of the implementation of MiFID II, to introduce the obligation to establish a branch, so that a Swiss bank wishing actively to provide services to private clients in Italy must establish a branch there and subject it to authorization.³ The provisions that give effect to this choice are Article 28 paragraph 3 TUF for non-bank firms and Article 29-ter paragraph 3 TUF for banks, which the next section examines.

MiFIR: the register and the equivalence decision

For eligible counterparties and per se professional clients, the European legislature chose a different technique. Articles 46 to 49 MiFIR establish a single regime under which a third-country firm may serve such clients throughout the Union without a branch, provided that it is registered with ESMA. Registration presupposes an equivalence decision by the European Commission under Article 47 paragraph 1 MiFIR, which states that the legal and supervisory arrangements of the third country ensure that firms authorized there comply with prudential and business conduct requirements equivalent to those of the Union. It further requires cooperation arrangements between ESMA and the third-country supervisor.⁴ Regulation (EU) 2019/2033 on the prudential requirements of investment firms amended these articles with effect from 26 June 2021. It gave the Commission the power to make equivalence conditional, introduced reporting duties for registered firms and allowed ESMA to restrict a registered firm's activities.⁵

Until an equivalence decision exists, and for three years after it is adopted, Member States may continue to apply their national regimes to professional clients and eligible counterparties (Article 46 paragraph 4 MiFIR). This transitional clause is the reason why Article 28 paragraph 6 and Article 29-ter paragraph 6 TUF still allow the Italian authorities to authorize a third-country firm to serve such clients without a branch. In practice the European passport for professional business has remained theoretical. No Swiss firm can be registered with ESMA under this regime, since registration presupposes an equivalence decision and recognition of Switzerland under Articles 46 and 47 MiFIR is still pending.⁶

Notes

1. Directive 2014/65/EU (MiFID II), Art. 39 para. 1 and 2. The corresponding Italian conditions in Art. 28 para. 1 TUF were verified (see the next section). ↩
2. Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Merkblatt zur Erlaubnispflicht von grenzüberschreitend betriebenen Geschäften, 1 April 2005, last amended 11 March 2019, https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_050401_grenzuebersc hreitend.html (exemption of foreign institutions from the licensing requirement under § 2 para. 4 of the German Banking Act); Swiss Bankers Association, "Relations between Switzerland and the EU", https://www.swissbanking.ch/en/topics/market-access/relations-between-switzerland-and-the-eu, which refers to the exemption procedure agreed with Germany. Given for comparison only. ↩
3. Federal Council, Roadmap del 23 febbraio 2015 … Analisi dell'attuazione (above), 20: "Nel 2018, nel quadro dell'attuazione della direttiva 2014/65/UE relativa ai mercati degli strumenti finanziari (MiFID II), l'Italia ha deciso di introdurre l'obbligo di stabilire una succursale." ↩
4. Regulation (EU) No 600/2014 of 15 May 2014 on markets in financial instruments (MiFIR), Art. 46– 49. TUF Art. 29-ter para. 5 applies Title VIII MiFIR to the free provision of services by third-country banks to eligible counterparties and professional clients and designates CONSOB and the Banca d'Italia as competent national authorities; para. 6 governs services without a branch in the absence of a Commission decision under Art. 47 para. 1 MiFIR: Brocardi.it, https://www.brocardi.it/testo-unico-intermediazione-finanziaria/parte-ii/titolo-ii/capo-iii/ art29ter.html. ↩
5. Regulation (EU) 2019/2033 of 27 November 2019 (Investment Firms Regulation), Art. 63, amending Art. 46–49 MiFIR, applicable from 26 June 2021. ↩
6. Swiss Bankers Association, "Relations between Switzerland and the EU", https://www.swissbanking.ch/en/topics/market-access/relations-between-switzerland-and-the-eu ("EU regulations for which recognition is pending include … Articles 46 and 47 of the Markets in Financial Instruments Regulation"; "Switzerland currently has no scope for actively providing cross-border banking and securities services across the EU"). ↩

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.