BETTER FINANCE submits its response to ESMA’s consultation on the Technical Standards specifying the criteria for establishing and assessing the effectiveness of investment firms’ order execution policies. While ESMA’s broader agenda includes reducing regulatory burdens for firms, BETTER FINANCE emphasises that, for retail investors, the new Level 2 RTS must prioritise clarity, usefulness, and the quality of information over quantity. It is essential that these standards effectively safeguard retail investors, avoiding excessive documentation and overly technical language that could hinder understanding.
To foster genuine investor protection and address past shortcomings, BETTER FINANCE calls for an approach that carefully balances and weighs granularity to ensure “best execution” assessments are meaningful while avoiding unnecessary complexity. Such granularity, coupled with regular monitoring, is crucial for firms to consistently work towards achieving the “best possible result” for clients as required under MiFID II.
BETTER FINANCE raises concerns about several proposed proportionality measures that follow the already reduced reporting obligations (e.g. the deprioritization of RTS 27 and 28 reports, which previously required detailed public, quarterly and annual data on execution quality).
BETTER FINANCE also suggests that ESMA should be empowered to accredit execution venues to promote fair competition and uniform standards across the EU, as NCA oversight can be inconsistent. In the consultation response, we emphasise that without strong oversight, the vagueness of certain provisions cannot ensure cohesive application. We raise specific concerns over the flexibility allowed in grouping financial instruments (usefulness should be mandated) and the use of alternative benchmarks (reference datasets) or third-party monitoring.
Additionally, we highlight that certain classification measures may create undue distinctions between retail and professional clients, ultimately disadvantaging retail investors. It is crucial that proportionality does not come at the expense of fairness, transparency, and effective best execution oversight.
BETTER FINANCE stresses the need for accuracy and reliability in the benchmarks firms use. While ESMA allows the use of alternative datasets, we advocate for making the Consolidated Tape (CT) an essential reference point for firms, providing an additional layer of accountability to enhance comparability. Given the early stage of the CT’s development and its partial consolidation, BETTER FINANCE acknowledges that other reference datasets may be used if they demonstrate superior quality and come from non-affiliated, straightforward, and interpretable sources.
Furthermore, while BETTER FINANCE acknowledges ESMA’s efforts to enhance transparency in execution venue selection, it emphasises that the proposed monitoring frequency may not be sufficient, particularly in volatile markets or when dealing with high-risk financial instruments. Specific criteria for when more frequent monitoring is necessary should be clearly defined to protect retail investors effectively.
BETTER FINANCE also supports ESMA’s provisions for transparency regarding implicit costs associated with internalisation practices (e.g. mark-ups when firms trade as principal or counterparty), as such transparency is essential for ensuring fair treatment and price clarity for retail investors. To achieve these objectives, BETTER FINANCE urges the establishment of a unified framework guiding firms to develop concise, transparent, and comparable policies.
These execution policies must convey key information on trading and execution conditions, including risks, conflicts of interest, and all associated costs. The ultimate goal is to empower retail investors with the information they need for informed decision-making, thereby enhancing overall market transparency and fairness.
For a detailed view of the responses to the targeted questions in the consultation document, please refer to the attached document below.