The European Securities and Markets Authority (ESMA) recently released two major updates that are set to reshape compliance obligations for investment firms and asset managers across the EU.
These relate to order execution policies and the structure of research payments, with both developments linked to amendments under the MiFID II framework.
Zeidler, a technology-driven law firm, recently delved into the research payments framework and what they mean for investment firms and asset managers.
On 10 April 2025, ESMA published its final report on the Regulatory Technical Standards (RTS) for evaluating the effectiveness of investment firms’ order execution policies. This follows the publication of the amended Directive (EU) 2024/790 in March, part of the broader MiFID Review Directive. The new standards are designed to ensure that firms consistently achieve best execution outcomes for their clients, whether retail or professional.
The RTS outlines several requirements. Firms must ensure their internal execution policies align with the general criteria for best outcomes. Execution venues must be carefully selected and justified, considering factors such as price, speed, cost, and likelihood of settlement. ESMA also expects firms to maintain a clear list of approved venues and adopt structured categorisation for financial instruments. Senior management accountability has been emphasised, alongside enhanced internal oversight and flexibility in using market data to support execution decisions.
These new standards are intended to drive a higher degree of transparency, fairness, and operational consistency in how investment firms execute client orders.
In a separate but related move, ESMA has also finalised technical advice on revising the research payments framework under MiFID II, in the context of the EU’s Listing Act (Directive 2024/2811). Published on 8 April 2025, the new guidance updates Article 13 of the MiFID Delegated Directive, reflecting a shift that allows investment firms to make joint payments for execution and research services—regardless of the issuer’s market capitalisation.
Under these proposed changes, investment firms must clearly disclose their remuneration arrangements when combining execution and research payments. There must be a formal agreement in place with third-party providers detailing cost. Additionally, firms must inform clients whether these services are paid jointly or separately, and how potential conflicts are managed.
An annual assessment of research quality is now required, based on rigorous criteria to ensure the value and usability of research content. When firms choose joint payments, they must distinctly separate the costs related to order execution from those relating to research, ensuring continued adherence to best execution standards.
Both regulatory updates grant firms an 18-month implementation window, giving them time to align internal systems, policies, and governance practices with the new rules.
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