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For the preparation of delegated acts and implementing acts, the European Parliament (EP) and the Council of the European Union (Council) may delegate power to the European Commission (EC) to adopt regulatory technical standards (RTS) and implementing technical standards (ITS). These RTS/ITS shall be developed by a European Supervisory Authority – in the case of MiFID II/MiFIR, this is the European Securities and Markets Authority (ESMA). To become effective, the respective European Supervisory Authority shall submit their draft standards to the EC for endorsement (vis-à-vis the EP and the Council).

By definition, a regulatory technical standard “is a delegated act, technical, prepared by a European Supervisory Authority. It should further develop, specify and determine the conditions for consistent harmonisation of the rules included in the basic legislative act.”

Accordingly, an implementing technical standard is a technical implementing act providing for the uniform application of certain provisions in the basic legislative act.

RTS/ITS shall not imply strategic decisions or policy choices and their content shall be delimited by the legislative acts on which they are based.

According to Regulation (EU) No 1095/2010 (establishing ESMA), ESMA has to conduct open public consultations on draft RTS/ITS and analyse the potential related costs and benefits before submitting them to the EC (unless such consultations and analyses are disproportionate in relation to the scope and impact of the draft RTS or in relation to their urgency). ESMA also has to request the opinion of the Securities and Markets Stakeholder Group.

Upon submission, the EC shall immediately forward the draft RTS/ITS to the EP and the Council.

Within three months of receipt of a draft, the EC must decide whether it will endorse it. It may also endorse the draft RTS/ITS in part only, or with amendments, should it deem this to be in the interest of the European Union. If the EC does not endorse the draft RTS/ITS (or not in full or with amendments), it must send them back to ESMA along with explanation of its respective reasons.

ESMA then has six weeks to amend the draft RTS/ITS as suggested by the EC before resending it in the form of a formal opinion (copying the EP and the Council). If ESMA fails to comply within the six-week period, the EC may either endorse it with the amendments it made itself or reject it. The EC is however not allowed to change the content of a draft RTS/ITS of ESMA without prior coordination with ESMA.

Should ESMA miss the time limit for the submission of a draft RTS/ITS, the EC may set a new time limit. Should ESMA fail to submit a draft RTS/ITS at all, the EC may adopt a regulatory/implementing technical standard by means of a delegated/implementing act without a draft from ESMA. In such case, the EC shall apply the same public consultation procedure as would be mandatory for ESMA; accordingly, it would also be obliged to forward the draft to the EP and the Council.

The EC would then also be obliged to send their draft to ESMA. ESMA, in turn, would then have six weeks to amend the draft from the EC and to respond in form of a formal opinion – again, a copy must be sent to the EP and the Council.

If ESMA does not respond with an amended draft within the six-week period, the EC may adopt the RTS/ITS. Should ESMA send an amended draft, the EC may either adopt it or accept only those comments it considers relevant. Content sent by ESMA may not be changed by the EC without prior coordination with ESMA.

In a case where the EC and ESMA cannot agree on an RTS/ITS, the EP or the Council may ask the Chair of ESMA and the responsible Commissioner to meet ad hoc to discuss their differences.

If the EC adopts a draft RTS/ITS from ESMA as is, the EP and the Council have a period of one month to object (starting after notification) but may ask for an extension by another month. If there were amendments or changes on either side, the EP and the Council have a period of three months to object (with an option to extend this period by another three months).

If neither the EP nor the Council object to the RTS/ITS within the above time limits, the RTS/ITS will enter into force upon publication in the Official Journal of the European Union or, respectively, on the date stated therein. They may be published in the Journal (and become applicable) earlier should both the EP and the Council have given the EC prior notification that they will not object.