Februaury 16 2016
What is MiFID II?
The Markets in Financial Instruments Directive, or MiFID, has formed a cornerstone for the regulation of European investment services since its introduction in 2007. MiFID II is the second casting of the Directive issued by the European Commission and is due to come into force in January 2018. The aim of the new legislation, together with the accompanying Regulation on markets in financial instruments (MiFIR), is to overhaul, strengthen and extend the existing regulatory system in the EU.
Who will be affected?
MiFID II and MiFIR (hereafter referred to collectively as ‘MiFID II’) will impact upon firms and trading venues that deal in the provision of financial instruments and services within the EU.
The list of affected firms includes (but is not restricted to):
- Investment firms
- Credit institutions
- Portfolio managers
- Stock brokers
- Corporate finance companies
- Commodity firms
- Market operators
- Central counterparties
- Data service providers
In addition, MiFID II will introduce new regulations for investment service providers and counterparties outside of the EU, known as ‘Third Countries’. Generally, the new regulations will require Third Country firms to establish a branch and become licensed for business in an EU member state. Third Country trading venues outside of the EU will be regulated by the same rules and standards as their European counterparts.
What are the objectives of MiFID II?
The overarching themes are to:
- Mitigate risk; to create a stable, responsible and transparent financial system
- Provide robust levels of investor protection
- Increase competition within financial markets
- Standardise EU regulation to create a level playing field
- Update and strengthen supervisory and enforcement powers
In order to achieve these objectives, MiFID II contains a range of measures that:
- Safeguard market quality and trustworthiness
- Provide improved levels of protection to firm’s clients
- Introduce a new category of trading venue: the organised trading facility, or OTF
- Introduce standardised conduct obligations to promote good governance
- Enhance monitoring to identify breaches, disorderly trading and market abuse
- Increase transparency
- Introduce new requirements for ‘Third Country’ entities that operate in the EU
The MiFID II Timeline
So, what happens now?
As the implementation date for MiFID II draws closer, the sheer scale and complexity of the legislation has left many firms uncertain as to how the changes will affect them. The European Commission recently extended the implementation deadline to January 2018 in acknowledgement that large numbers of firms would not be ready by the planned implementation date of 2017. Although the challenges posed by MiFID II may seem daunting, the key to successfully managing any regulatory change is good planning – but time is now critical! Firms should not delay in taking positive action to ensure they are fully prepared for the impact of MiFID II. An immediate comprehensive analysis of all aspects of current business operations and practises is a vital first step in preparing for the inevitable changes to come for business processes and infrastructure. With the scope of the Directive extended significantly to cover more instruments than its predecessor and with the imminent reduction of MiFID I exemptions, it is clear that MiFID II will have a profound effect on very many firms operating throughout the EU - and beyond.