The Court of Justice of the European Union on 16 May 2024 delivered its judgment in Case C-695/22, Fondee a.s. v Česká národní banka, concerning an interpretation of the Markets in Financial Instruments Directive (Directive 2014/65) (‘MiFID II’ or MiFID 2′), and the issue of cross-border investment orders.
The case – referred to the CJEU by the Prague City Court (Městský soud v Praze) in the Czech Republic – concerns a company that is involved, as an intermediary, in the provision of investment services by investment companies established in the Netherlands to clients residing or established in the Czech Republic. Notwithstanding MiFID II, the national law of the Czech Republic provides that domiciled financial service firms in the Czech Republic are prohibited from transmitting clients’ orders pertaining to investment instruments (securities orders) to a securities trader established in other Member States.
The applicant, Fondee, is an investment intermediary operating on the basis of an authorisation granted by the Czech National Bank. It was, however, fined by the Czech National Bank for certain activities in 2021, namely, transmitting 407 orders for its clients to a securities trader established outside the Czech Republic, to the Netherlands.
Fondee is of the view that MiFID II allows them to do so. The Czech National Bank however states that it does not
Article 3(1)(c)(i) of the MiFID II states that,
‘Member States may choose not to apply this Directive to any persons for which they are the home Member State, provided that the activities of those persons are authorised and regulated at national level and those persons:…in the course of providing that service, are allowed to transmit orders only to:…investment firms authorised in accordance with this Directive;’
The Czech National Bank, in this case, had made use of this option. But as for the Court stated as regards the Directive in question, it was a directive that engaged in maximum harmonisation, in that it,
‘brings about full harmonisation of national legislation relating to the cross-border provision of investment services falling within its scope, which include, as is apparent from Annex I to that directive, the reception and the transmission of orders in relation to one or more financial instruments’ (para. 22).
The Court next noted that,
‘Article 3(1)(c)(i) of…[the]…Directive…thus expressly provides persons exempted by a Member State from the application of that directive with the option of transmitting orders they receive to authorised investment firms.’ (para. 29).
In agreement with Opinion of Advocate General Pitruzzella (his Opinion was delivered in November 2023), the Court this month stated that the national law in question,
‘concerns the transmission of orders to any authorised investment firm and not only to those established and authorised in the home Member State of the person exempted from the application of that directive.’ (para. 31, emphasis added)
Accordingly, in effectively ruling for Fondee, the Court quite cumbersomely stated that,
‘persons exempted by a Member State from the application of that directive are authorised to transmit, with a view to their execution, orders from clients residing or established in that Member State to investment firms that are established in another Member State and are authorised to that end, under that directive, by the competent authority of that other Member State, and, accordingly, as precluding national legislation prohibiting such transmission.’ (para. 32).
As for whether the national measures were incompatible with the free movement of services or not, the Court also noted that given the Directive in question was a case of maximum harmonisation, there was no need to assess the compatibility of the national measures in question with EU primary law, namely, the free movement of services. This has been coined the ‘legislative priority rule’ (Ní Chaoimh, 2022).
The judgment of the CJEU in Case C-695/22, Fondee a.s. v Česká národní banka is available here.