While increased legislation may not have been on your Christmas wish-list, the revisions made to the ‘Markets in Financial Instruments Directive,’ – otherwise known as MiFID – land in January 2018, and are set to change the way investments are managed, with alterations at every level from communication to compliance. This EU-driven document is responsible for the regulations that govern investment, and the reworking of the original, known as MiFID II, requires even greater diligence than its predecessor. So commit to making a new year’s resolution to be up to date and fully compliant by the deadline, therefore assuring continued integrity of your professional service to your clients.
What Is It?
MiFID II is the updated version of the initial regulations that were rolled out across the European Economic Area in 2007. Designed to increase transparency, standardise regulation and set out conduct standards, MiFID is widely credited with having made charges, costs and fees easier to understand, along with increasing competition in previously sluggish markets. Despite its ostensible EU-only reach, the international scope of financial markets means that MiFID has made a global impact.
Why The Revisions?
Launched a year before 2008’s financial crisis, MiFID underwent a review in 2010, and the result is revised legislation focussed on strengthening the need to protect investors, with prescriptive requirements coming in to provide a clearer picture of the structure of markets, as well as making the costs of investment and trading more explicit.
When Is It Due?
MiFID II has been subject to two delays since being devised. The first, in May 2016, involved issues regarding the technical implementation, before its next due date of January 2017, was put on hold for a year to give financial institutions adequate time to prepare. It’s now set to begin on January 3rd, 2018, with the chair of the European Securities and Markets Authority, Steven Maijoor, keen to uphold it, promising –
‘There will be no further delay in its implementation.’
How Is It Happening?
Preparing for MiFID II has been an on-going process for many months, and investors themselves will already have noticed changes, particularly during the summer when major investment platforms, such as Hargreaves Lansdown, required them to verify their nationalities with either their passport or NI number. Guidance has been rolled out by the FCA since January 2017, giving clear instruction and advice, while the proposed changes were published in consultation papers during 2015.
What Will Change?
It’s a time-honoured tradition that regulations get tighter, not looser, and MiFID II is no exception. Challenging everything from sales-driven staff remuneration to direct commissions, MiFID II will require quantitative and qualitative justification that these inducements uphold responsible business contact, while scrutiny regarding communications means that some electronic and telephone conversations will need to be kept on record for seven years. Keen to cut down on potential conflicts of interest, it will also limit the number of directorships that any individual can hold.
But What About Brexit?
A legitimately thorny question, the validity of new EU legislation at a time of such political upheaval is not lost on City-watchers, but the FCA stand firm. As far back as 2016, they made their position clear-
‘Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect’.
With Phase 1 of the government’s negotiations only recently successfully negotiated, MiFID II will impact before Britain leaves the EU, so the new and revised rules for investment will apply irrespectively.