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ProfessionalsLegislationLaws and regulationsAct on Financial Supervision (Wft)MiFID

 

MiFID

On 1 November 2007 the Markets in Financial Instruments Directive (MiFID) has come into effect and will replace the current legislation on investment firms and financial markets, the Investment Services Directive (ISD).

MiFID extends the coverage of the ISD and introduces new and more extensive requirements that firms will have to comply with, in particular for their conduct of business and internal organisation.

MiFID is an important part of the European Union’s Financial Services Action Plan (FSAP), which is designed to help integrate Europe's financial markets. MiFID comprises two levels of European legislation. ‘Level 1’, the Directive itself which was adopted in April 2004 and ‘Level 2’, the technical implementing measures of Level 1-legislation. Furthermore, ‘Level 3’ contains recommendations by CESR on implementing issues and offers guidance for stakeholders

The overall objectives of the MiFID are basically the same as those of the ISD:

  • The protection of investors and market integrity by laying down harmonised regulations that govern the activities of licensed intermediaries;
  • The promotion of honest, transparent, efficient and integrated financial markets.

Compared with the ISD, these objectives are achieved under the MiFID through:

  • more comprehensive rules of conduct for investment firms to protect the investor; and
  • more comprehensive rules for the negotiation and execution of transactions in financial instruments on various trading platforms and/or by investment firms.

Wider scope
The MiFID's scope has been extended beyond that of the ISD by extending the list of investment services, ancillary services and financial instruments. The European passport issued based on the MiFID will allow more services and activities to be provided in other Member States, which will therefore promote the integration of a single European financial market.

Under MiFID, the following services / activities will also require a license:

  • The giving of investment advice will become an investment service for which a license is required;
  • The operation of multilateral trading facilities (MTF’s);
  • The list of financial instruments has been expanded to include commodity futures transactions and other related derivatives transactions.

Greater degree of harmonization
MiFID sets out more detailed requirements governing the organisation and conduct of business of investment firms, and how regulated markets and MTFs operate. It also includes new pre- and post-trade transparency requirements for equity markets; the creation of a new regime for ‘systematic internalisers’ of retail order flow in liquid equities; and more extensive transaction reporting requirements.

Cross-border services
MiFID clearly describes the allocation of responsibilties between national supervisors in case of cross-border investment services / activities. The basic principle is that the supervision on the rules of conduct is exercised by the authorities of the home member state (“home country control”). Branches and tied agents are exempted from this principle; they are subject to the rules of conduct of the member state where the branch is established (“host country control”).