Who is MiFID Relevant to and Why?

The MiFID is a regulatory framework which applies to firms providing financial services and financial instruments to their clients across the European Union. Therefore, financial firms must comply with MiFID to avoid investigation from the Financial Conduct Authority.

Who is MiFID Relevant to and Why?

Compliance Knowledge Base | FCA Compliance Training

Posted by: Morgan Rennie Published: Tue, 22 Oct 2019 Last Reviewed: Tue, 22 Oct 2019
Who is MiFID Relevant to and Why?

The Markets in Financial Instruments Directive (MiFID) is a regulatory framework enforced across the European Union (EU) upon firms which provide financial services and financial instruments to their clients. Therefore, MiFID is relevant to the vast majority of financial professionals operating within the EU. MiFID aims to increase healthy competition in the financial market and to protect consumers, by demanding that financial services firms act with more integrity and transparency. Therefore, understanding MiFID and its relevance is essential.

What is MiFID II?

MiFID was enforced in the UK in 2007 but was subsequently revised in January 2018, to create MiFID II. MiFID II addresses the weaknesses which were present in the original set of regulations, and therefore MiFID II is now a robust regulatory framework which financial firms must abide by.

MiFID II aims to enhance transparency between financial firms and to maintain healthy competition in the market. Consequently, individual investors and clients using these firms will have access to a range of products and will be sufficiently protected.

Who is MiFID II relevant to?

MiFID II is relevant to all large, small and medium-sized financial firms operating within the EU, such as the following:

  • Banks
  • Investment Managers
  • Fund Managers
  • Financial Advisers
  • Brokerage Firms
  • Retail Investors
  • Trading Venues
  • Fintech Firms (Direct Investment Platforms)
  • Derivatives Firms
  • Exchange Officials

The Financial Conduct Authority (FCA) is the body responsible for regulating financial firms and ensuring they are compliant with MiFID II. The FCA established a six-month transitional period for firms to become fully compliant with MiFID II, after the enforcement date of 3 January 2018.

To become compliant with MiFID II, firms were required to revise the procedures which they had been using previously, to ensure they could meet the demands stipulated within the new regulations, such as:

  • Providing accurate reports to detail specific costs and charges administered to clients.
  • Providing periodic reports with details of all transactions which have taken place, to ensure there is transparency between financial firms and their activity in the market.
  • Demonstrating that the decisions made by portfolio and asset managers, on behalf of their clients, have not been unduly influenced by third parties.
  • Demonstrating that all decisions made by the firm are in the best interest of the clients.

It has been considered that small to medium-sized firms found becoming compliant with MiFID II a significant struggle. Potentially, this could have been due to a lack of capacity in smaller firms to introduce the large procedural changes which were needed.

Who is MiFID Relevant to and Why?

What will happen if MiFID II is ignored?

If MiFID II is relevant to your job role, it is your responsibility to ensure your own conduct is compliant with the regulations stipulated within MiFID II. Moreover, it is your responsibility to ensure that you report any misconduct which you identify within your firm to the FCA.

The FCA will launch an investigation if they suspect that a financial firm is guilty of misconduct or of preventing healthy competition from taking place between financial service providers. The FCA has a key focus on ensuring firms are compliant with the regulations stated within MiFID II, and therefore it is important to comply with MiFID II, to avoid investigation from the FCA.

How does MiFID II impact the financial market?

MiFID II aims to protect investors and clients, whilst ensuring that the financial market operates in a transparent, fair and competitive way. MiFID II applies to all aspects of the financial market, including bonds, stocks, commodity and derivative markets.

Any firm and their employees who invest, trade or work in the financial market across the EU, will, therefore, be affected. Therefore, the impact of MiFID II upon the financial market has been substantial.

Recently, concerns have been expressed regarding how MiFID II will continue to impact the financial market once the UK leaves the EU. The FCA stated to confirm that until a decision has been finalised, MiFID II continues to apply to financial firms in the UK and those operating in the EU as normal. For now, it can be expected that the UK leaving the EU will initiate certain regulatory changes within MiFID II, but these will be clarified at a later date, once decisions have been finalised.

Therefore, knowledge of MiFID II and the potential changes which could occur in the future is of utmost importance.

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