ESMA warns of PFOF risks

ESMA has issued a warning to remind firms of the investor protection concerns around receipt of payment for order flow. It has previously said that it is unlikely that the receipt of PFOF would be compatible with MiFID 2 and the obligation for firms to act in clients’ best interests when executing orders.  ESMA says there is a clear conflict when firms direct order flow to certain execution venues in return for payment, as it incentivises the firm to choose the venue offering the highest payment rather than that which offers the best outcome for clients.

ESMA is asking supervisors to prioritise this in their supervisory activities.

Emma Radmore