The European Council adopted a set of legislation on 13 May 2014 regulating the trade in financial instruments and the investment services sector. The new measures, known as MiFID II and consisting of a directive and regulation, are expected to be published shortly. The existing directive (MiFID I) will be replaced. Most of MiFID II will have to be applied in all member states within 30 months after it comes into force, probably 1 January 2017. De Brauw organised a seminar on 15 May 2014 about MiFID and its practical implications. At this well-attended event Gerben Everts, executive board member at the Dutch financial supervisor AFM, gave a keynote speech which can be viewed on the AFM website (in Dutch only).
MiFID II is mainly relevant to investment firms, and of course to banks that provide investment services or engage in investment activities. These organisations will have to start preparing for a number of changes to their governance and business organisation. As MiFID II significantly extends not only the scope but also the detail of the regulation, most investment firms will have to review existing activities and may need to adjust their compliance monitoring accordingly. Under MiFID II they will have to take into account that supervisory authorities will have a greater set of supervisory tools at their disposal and that stricter sanctions will apply.
Investment firms will have to provide more information to their clients, e.g., about the total cost of an investment service or the cost of a financial instrument that they recommend or market. Where investment advice is provided, the client must be told beforehand if the advice is provided on an independent basis. If it is, the financial instruments included in the advice may not be limited to instruments of entities that the service provider has a close link with. And even if the client is a professional investor, providers of independent investment advice or asset management may not pay or receive any commission. "Execution only" services will be subject to additional restrictions, and services providers will therefore need to reassess the terms of their agreements with clients.
Trading in a greater range of financial instruments will be subject to transparency requirements, and executed transactions in more financial instruments will have to be reported to the supervisory authorities. MiFID II introduces strict rules for high-frequency trading and introduces an obligation to execute transactions in derivatives on a trading platform: a regulated market, MTF or the new OTF. Parties that are active in commodities markets and trading in commodity derivatives will, much sooner than is currently the case, fall under the licence and supervision regime for investment firms.
Please click here for the full version of the Legal alert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
