One Year Anniversary for MiFID II – Its ImplicationsSalvus Team
The Markets in Financial Instruments Directive (MiFID II) was introduced on the 3rd of January 2018, following a year-long delay due to concerns raised by ESMA. On its first anniversary, we go back in time to examine the real scope for introducing the original MiFID legislation, the reasons that led to MiFID II and the intentions for introducing new legislation under MiFID II.
In November 2007, the European Parliament introduced MiFID intending to create a benchmark to ensure consistency in investor protection across the European Union member states. However, since then a number of things made it quickly obvious that an upgraded directive would be needed. Things such as the global financial crisis of 2008, the changes in technology, the constant innovation in financial instruments and the increase of automated trading, revealed that much more was needed to achieve investor protection.
In October 2011, the European Commission drafted the revised legislative proposal for the MiFID II, which was taken to the European Parliament on the 15th of April 2014 for approval or rejection. It was approved, and that day is known as ‘The Super Tuesday’. The final MiFID II package consists of the MiFID II Directive, the Regulation (MiFIR), delegated acts, technical standards, and guidance in the form of Q&As, all of which must be read together for the proper implementation of the required.
All the things that kept happening in and around the financial markets and the European economies, caused the new legislation to be introduced with many years of delay.
The complexity of MiFID II resulted in radical changes for investment firms. In brief, the package includes;
– enhanced product governance,
– suitability and appropriateness assessment,
– new investor protection requirements,
– improved pre-trade and post-trade transparency,
– enhanced regulation of algorithmic and high-frequency trading,
– greater consolidation of market data for best execution,
– more extensive transaction reporting,
– a new framework for non-EEA firms to access the EU market.
Additionally, the MiFID II provided ESMA with the power to intervene in order to protect investors by prohibiting the distribution or sale of certain financial instruments and/or enforce lower leverage limits for complex products. As a result of this power, ESMA introduced the ‘temporary measures’ of product intervention 1st of August 2018.
One year since MiFID II coming into force, there is – really, only – one question:
Have the MiFID II requirements formed the true foundations for transparency and investor protection or have they added more complexity without actual merit for everyone involved, giving many the right to shout against a trend of over regulation?
The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.