MiFID, MiFID II, and MiFIR Explained

The number of abbreviations in the EU financial legislation may be overwhelming but do not worry – this article explains everything in simple words. Follow through to get an insight into MiFID, MiFID II, and MiFIR, and how to comply with them.

Okay, what is MiFID?

The European Union has some undeniably important goals on its agenda like ensuring peace and freedom, securing a high standard of living and sustainable economic growth in Europe. As part of the latest goal, the EU developed MiFID which stands for the Markets in Financial Instruments Directive. To put it simply, it is a directive that aims at creating a regulated market in investment services all over Europe to guarantee full protection for investors and their assets.

What are MiFID II and MiFIR then?

MiFID came into effect in 2007. It was the first regulation of this scale and it certainly could not cover all aspects of the investment sphere right from the beginning. What is more, since 2007 the market has, of course, expanded and new financial technologies appeared. To keep up with the times the EU released new regulation under the name MiFID II that went into force in 2018. Currently, this directive taken together with MiFIR (Markets in Financial Instruments Regulation) covers gaps of previous MiFID and makes the legislation even more integral. Talking about MiFIR, in lay terms, it compliments MiFID II and it is mostly about reporting requirements like trade reporting and transaction reporting.

Who does MiFID II affect?

MiFID II affects all businesses that provide investment services including both banks and non-banks. It covers all types of services whether they are advisory services, asset management or broking. To put in shortly, all organizations that on frequent and systematic basis perform operations on financial markets are the subjects to MiFID II. It is vital to understand that the Directive is not about private investors. It is about firms dealing on the account of these private investors. Though the Directive sets out a remarkable number of rules to comply with, it is not against investment firms. It helps them to ensure the most transparent and useful service for their clients while encouraging the improvement of infrastructure.

And the most important – how to comply?

  • Transparency

We have already mentioned this word in our article and it is no wonder since MiFID II (MiFIR to be exact) talks about it a lot. Businesses must ensure transparency in everything – in how they deal with clients and what they offer them, how they create client database, and what transactions they make and how they report them.

  • Data Recording, Data Storing, and Data Protection

In MiFID II, a lot of emphases is placed on data recording, data security and managing sensitive data. For instance, if you talk over the phone with your client, the call must be recorded if it contains any sort of financial advice, whether it involves a transaction or you just recommend some services. Data must be protected according to GDRP (General Data Protection Regulation) and the quality of data, their availability and, once again, transparency must be put at top of the list. Unfortunately, here we come to another challenge – to be able to record, store, and protect the data in the appropriate way investment firms have to update the technology they use.

In summary, to comply with MiFID II investment firms have to reconsider how they deal with their clients. They are obliged to provide services most clearly and transparently and issue reports containing necessary investor-oriented information. Investment firms also have to make sure that they record and store data connected to their clients in the most correct and legitimate way. These regulations have already proven quite effective. The cost of financial services throughout the EU has decreased which made the European market especially appealing for investors.

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