| MiFID 101 |
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| 27/01/2008 | |
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Chris Hibben, Head of MiFID implementation at UK's Financial Services Authority, answers this week's questions on the Markets in Financial Instruments Directive. 1. What is MiFID? MiFID - the Markets in Financial Instruments Directive – came into effect on 1 November 2007. It is probably the most important component of the Commission's Financial Services Action Plan, aimed at creating a single market for financial services. MiFID replaces the Investment Services Directive (ISD) and provides a more convergent pan-EU approach to the regulation of securities markets and investment firms. MiFID sets standards for the authorisation and on-going compliance of investment firms, regulated markets and multilateral trading facilities across the EU. It also expands the types of business regulated at the European level, including, for example, the provision of investment advice, dealing in commodity derivatives and operating a multilateral trading facility (MTF). 2. What are some of the regulatory challenges it represents? For firms, MiFID imposes obligations in relation to: § ownership and management (executives directing the business must be of good repute) § organisational requirements (for example, a firm's systems and controls, the protection of client assets, management of conflicts of interest and record keeping) § conduct of business obligations when dealing with clients (for example, provision of information about the firm, its services and its charges; marketing communications; and know your customer and suitability requirements) § the handling and execution of client orders and § the transparency and reporting of market transactions Some of these obligations are expressed in fairly high-level terms; others are more detailed. Generally, however, MiFID does not prescribe precisely how a firm should comply with its obligations. So one of the main challenges for firms is to devise practical means of compliance that are both appropriate to the nature, scale and complexity of their business and sufficient to deliver on their obligations to clients. A principal benefit of MiFID is that (as with the ISD) once authorised by its home state, a firm has the freedom to provide its services anywhere in the EU, whether cross-border from its home state or by the establishment of branches in other EU countries – the so-called "passport". There is an expectation that the passport under MiFID will work more effectively than under the ISD. For EU securities market regulators, one of the main challenges is to improve cooperation, particularly in relation to the supervision of passported business. 3. Does it require new areas of action on the part of financial institutions? In the UK, for the most part, the areas that MiFID covers were already regulated; therefore, the issue confronting UK firms has been how to adapt to changes of detail to existing requirements, rather than how to cope with the introduction of completely new standards. The broad impact has been to place a greater emphasis on firms establishing, documenting, disclosing and reviewing policies, systems and procedures. Nevertheless, some of these changes have been significant, for example, in relation to the categorisation of firms' clients, the provision of best execution and the reporting of transactions to the FSA. |
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Articles of the same Serie : 101 |
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