French law revisits the MiFID RTO Service definition

In the absence of harmonisation at European level, RTO Service has been defined in various ways by the different EU Member States. The French definition of the RTO Service initially included a condition linked to the transmission of the order to an investment service provider (ISP) based in the EEA or an equivalent entity based in a third country, which constituted a national specificity (for not saying gold plating) compared to other EU Member States.

This discrepancy was brought to the attention of the French authorities on several occasions, particularly in the context of relocation of financial institutions in France as a consequence of the Brexit.

The Autorité des marchés financiers (AMF) confirmed in a press release dated 30 August 2023 that change in the RTO Service definition had been decided:

• in the context of the entry into force of the regulatory framework for crowdfunding service providers (Regulation (EU) 2020/1503); and
• to foster alignment of the French definition with those retained by other EU Member States.

The Decree broadens the definition of the RTO Service, set out under Article D. 321-1 of the French monetary and financial code, by removing the condition pertaining to the transmission of the order to an ISP based in the EEA or an equivalent entity based in a third country.

An RTO Service is now deemed provided when an entity receives and transmits, to another person or entity, on behalf of a third party, orders relating to financial instruments or to one or more units referred to in Article L. 229-7 of the French environmental code. In other words, the impact of such new broaden definition is that certain activities which were previously not regulated might now fall within the ambit of the RTO Service and their provider will be caught by a MiFID licensing requirement.

This change will primarily impact financial intermediaries as well as other new financial stakeholders (fund distributors, fintechs), and will require them to review their current activities to determine whether a change in their status/methods of operation is necessary. For traditional stakeholders (e.g. investment firms, credit institutions), analysis will have to be carried out to ensure that the relevant protections are awarded to their clients when this revisited RTO Service is being provided to them.