MiFID II Summary: regulating the financial industry

The second revision of the Markets in Financial Instruments Directive (MiFID II) became effective on the 3rd of January 2018, implementing a series of regulations to keep financial markets transparent and safe for investors. However, there are still a few things that remain unclear regarding its impact and scope of action. For this reason, we have prepared a brief MiFID II Summary to make sure that there will be no misunderstandings to interfere with the process of becoming compliant.

MiFID II Summary: Introduction to the directive

The Markets in Financial Instruments Directive II, also known as MiFID II, is a law established by the European Parliament with the purpose of standardizing the regulation for investment services across all members of the European economic area. It is widely considered to be one of the most important regulations introduced by the European Union since the onset of the financial crisis in 2008.

The directive aims to foster harmonized functioning of financial markets, encourage competition between new categories of trading venues, and enhance investor protection.

What is the main purpose of MiFID II?

• Making European markets safer, significantly more transparent, and highly efficient;
• Restoring investor confidence that was shaken by the financial crisis;
• Moving a significant part of over-the-counter trading on to regulated trading venues;
• Creating a unified financial market across the European Union.

What are some of its implications?

Companies affected by the directive will have to consider the following implications:

• Transparency of policies and procedures for clients;
• Increased threshold limits and controls around dark pool trading;
• Increased transparency obligations on transaction and trade reporting;
• Obligation to record phone and electronic communications;
• Product governance, including monitoring of product performances;
• Inclusion of the target market, product, and client characteristics in the sales approach;
• Cost and performance transparency.

As a company that offers cloud-based solutions for call recording, we perfectly understand the importance of complying with MiFID II and providing maximum transparency to our clients.

Who will be affected by the directive?

The MiFID II Directive applies to companies that:

• Provide investment services, such as investment advice and discretionary investment management;
• And/or manufacture and distribute financial instruments, such as equity and fixed income securities, insurance products with an investment component, and shares in investment funds.

Generally speaking, the new regulations cover all aspects of trading– banks, fund managers, trading venues, brokers, high-frequency traders, and even retail investors.

What has changed from MiFID to MiFID II?

The first revision of the directive came into effect prior to the financial crisis in 2008, but there were some issues that were not addressed properly in the original drafts. One of them was that the regulatory approach to third country organizations was left up to each member state, giving competitive advantage to some companies outside the EU, as they were subject to less regulations.

To solve this issue, MiFID II was designed with the idea of harmonizing the rules for all companies that deal with clients from the European Union. The purpose is to extend the regulations beyond shares to other types of assets, such as contract-based assets.

What will be the penalties for non-compliance with MiFID II?

Although the exact monetary penalties associated with the directive are not clear yet, there is some basis for assumptions – under the first revision that was implemented back in 2007, the Financial Conduct Authority (FCA) charged a 1.5 GBP fine per line of incorrectly reported or not reported data. Depending on the volume of inadequately reported transactions, some penalties can reach millions of pounds for non-compliance with MiFID II.

What will be the next step if you are under the obligation to record your interactions?

Don’t worry, we’ve got your back! If your company is affected by the Markets in Financial Instruments Directive and you need to record your interactions, we offer cloud-based solutions that do that for you.

Recordia lets you record, encrypt, and store calls from landlines, mobile phones, and PBX, among others. The system can be equipped with analytics and machine learning for further analysis of interactions, creation of customer feedback, and prediction of trends.

If you still have questions after revising our MiFID II Summary, do not hesitate to contact us!