[ESMA35-42-1428 ] Supervisory Briefing on Copy Trading

The European Securities and Markets Authority (ESMA) has published a supervisory briefing on copy trading services, aimed at promoting investor protection and supervisory convergence across the European Union (EU).
The briefing provides guidance on the legal qualification of copy trading services as investment services and sets out supervisory expectations with regard to the Markets in Financial Instruments Directive (MiFID II) requirements. These include information requirements, product governance, suitability and appropriateness assessment, remuneration and inducement, and qualifications of traders whose trades are being copied.
ESMA has included indicative questions that supervisors could ask themselves or firms when assessing approaches to the application of relevant MiFID II rules. ESMA and National Competent Authorities (NCAs) will continue monitoring this topic and may take further steps in the future to ensure that copy trading is provided in a manner consistent with MiFID II requirements and in the best interest of the client.
The briefing covers several aspects of copy trading services, including the qualification of such services as investment services, information requirements on marketing communications and costs and charges, product governance, suitability and appropriateness assessment, remuneration and inducement, and qualifications of traders whose trades are being copied. ESMA has emphasized that the briefing does not constitute new policy or promote any particular way of supervising the rules. Instead, it has been designed to be used in a manner that best fits supervisors‘ methodologies, whether distributing the briefings internally or passing them to external bodies such as auditors.
Copy trading refers to a service that involves trading a client’s assets based on the trades of another trader, adding a social element to the process. The trading is usually automated but can involve partially manual trading of the client’s assets. ESMA and NCAs aim to ensure effective and consistent application of the relevant MiFID II rules and foster convergence in supervisory outcomes.
This supervisory briefing represents a significant development for copy trading services in the EU, as it provides clarity and guidance for firms offering such services. It also shows ESMA’s commitment to promoting investor protection and ensuring that investment services continue to be provided in the best interest of the client.