Swotting up on MiFID revisions

Swotting up on MiFID revisions

Simon Lovegrove, global head of financial services knowledge at Norton Rose Fulbright, explores the latest consultation from the European Securities and Markets Authority (ESMA) on the practicalities of the implementation of the revised Markets in Financial Instruments Directive (MiFID II)

ESMA has launched a consultation process for the implementation of MiFID II and the Markets in Financial Instruments Regulation (MiFIR). Enhanced transparency, data publication and commodity derivatives are some of the areas covered by proposals in the consultation and discussion paper. The papers divide the main issues into those concerning the financial markets structure and those concerning investor protection. Responses to both documents should be received by 1 August 2014.

What topics are caught by ESMA’s discussion paper?

The discussion paper is structured around seven key topics:

  • investor protection
  • transparency
  • data publication
  • micro-structural issues
  • requirements applying on and to trading venues
  • commodity derivatives
  • market data reporting

Note that this is only the first half of the proposals with a follow up consultation paper being due later this year.

What are ESMA’s main proposals in relation to investor protection in the consultation paper?

The investor protection section of the consultation paper is massive, being some 150 odd pages. It covers a wide range of issues including:

  • the exemption from the applicability of MiFID for persons providing an investment service in an incidental manner (MiFID, art 2(1)(c)).
  • record keeping
  • product governance
  • conflicts of interest
  • remuneration, and
  • inducements

There is too much information in these pages to pick up every single proposal but some interesting points include:

MiFID, art 2(1)(c)

ESMA states that common criteria for the exemption should be developed noting that the word ‘incidental’ should not solely be defined through temporal criteria (ie frequency or duration of services). Instead, the provision of the investment service should have an inherent connection to the main area of the professional activity and be of minor and subordinated scope in comparison. Further, ESMA states that an investment service would not be considered as being provided in an incidental manner if the person who provides the investment service markets

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