The Markets in Financial Instruments EU Directive (2004/39/EC), referred to as MiFID, has been applicable across the EU since November 2007.
It is a cornerstone of the EU’s regulation of financial markets. It seeks to improve their competitiveness by creating a single market for investment services and activities, as well as to ensure a high degree of harmonised protection for investors in financial instruments. MiFID provides direction to interested parties on the following aspects:
• required conduct of business and organisational requirements for investment firms;
• authorisation requirements for regulated markets;
• regulatory reporting to avoid market abuse;
• trade transparency obligation for shares; and
• rules on the admission of financial instruments to trading.
Following its implementation in the EU in 2007, in October 2011 the European Commission adopted a legislative proposal for the revision of MiFID which took the form of a revised Directive and new regulation. In June 2014 MiFID II and MiFIR (Markets in Financial Instruments Regulation) were adopted by the European Parliament and the Council of the European Union.
The MiFID II directive came into effect on January 3, 2018, providing a legislative framework intended to strengthen investor protection and make financial markets more efficient, resilient and transparent. This directive changed the entire marketplace, specifically in relation to the expanded asset class coverage, structural market reform and its applicability to firms previously exempted under MiFID I. The Directive has wide-ranging impacts on everyone engaged in the dealing and processing of financial instruments, namely, investment, private and retail banks, banks, asset managers, brokers, market infrastructure providers and non-financial firms globally, as well as in Europe due to its cross-border requirements.
These firms and other in scope entities are required to have an understanding of the Directive’s impact on both the operations of their organisation as well as on the market overall in order to assess the specific compliance requirements on their organisation and determine any potential commercial opportunities.
Among the key provisions of MiFID II, this new directive ensures fairer, safer and more efficient markets and greater transparency for all participants through the setting up of a Regulator and Supervising Authorities. New reporting requirements and tests have increased the amount of information available, provided better market structure and improved overall market transparency by reducing the use of dark pools and over-the-counter (OTC) trading. The rules governing high-frequency-trading impose a stricter set of organisational requirements on investment firms and trading venues, and the protection of investors has been strengthened through the introduction of new requirements on product governance and independent investment advice, the extension of existing rules to structured deposits and the improvement of requirements in several other areas. These changes have had significant effects on the Maltese legislative framework and the financial services industry in general.
In line with MiFID II, the Malta Financial Services Authority has updated the Investment Services Rules and consequently also published the Conduct of Business Rulebook. These Rulebooks impose more onerous obligations of MiFID II on the local market to better ensure investor protection. Furthermore, the market needs to keep abreast of the ongoing Guidance issued by the European Securities and Markets Authority and apply a proactive approach to new guidance which will help the local players remain competitive in the global financial services industry.
For more information on this topic join EY Malta’s CPE Accredited training event on MiFID II and subsidiary local legislation and regulation on May 8 from 2.30pm to 5.15pm at EY’s Connect Centre in Msida. Kindly send an e-mail to events@mt.ey.com to confirm your attendance. Admission fee for this session is €59 (including VAT)
Maria Calleja is a manager within EY’s Wealth and Asset Management Advisory service line. She has been involved in various client engagements, assisting clients as necessary to obtain relevant financial services licences as well as assist licensed entities comply with updates to current legislative and regulatory frameworks, including MiFID II, IDD, the new Insurance Distribution Rulebook and the Conduct of Business Rulebook.