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MiFID

Investor protection. MiFID. Goals. Offer European passport for investment firms allow sales of financial products and services throughout EU Harmonise investor protection driven by rapid increase in both number and sophistication of financial services and products. Impact – wider coverage.

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MiFID

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  1. Investor protection MiFID

  2. Goals • Offer European passport for investment firms • allow sales of financial products and services throughout EU • Harmonise investor protection • driven by rapid increase in both number and sophistication of financial services and products

  3. Impact – wider coverage Financial and investment services Financial instruments Execution venues

  4. Whom does it apply to? INVESTMENT FIRM/BANK Markets Asset Management Funds, UCITS Investment Banking Treasury Corporate Finance Financial Markets MTFs Syst. int. DISTRIBUTION Retail, Private Banking, Institutional Sales

  5. Organisation General Organisation, Compliance, Internal Audit, Risk Management, Outsourcing, Conflict of Interest, ... Market Transparency Pretrade – Posttrade Transparency, Transaction Reporting to Regulators Recordkeeping Transaction Data, Contracts, ... Conduct of Business Client Classification, Information to Clients, Suitability and Appropriateness Tests, Reporting to Clients, ... Best Execution Best Execution Policies, Monitoring of Policies Impact - areas

  6. Client protection • Client clasification • “Official” classification • Retail clients • Professional clients • Eligible counterparties • Movement between groups on request • “Unofficial” classification • Firm specific policies • Breakdown by groups or/and financial products and services

  7. Client protection • Suitability Test (Investment advice and Portfolio management) • Obtain necessary information • About knowledge and experience • About financial situation • Source and extent of regular income • Total, liquid assets, investments, real property • Regular financial commitments • About investment objectives • Duration • Risk profile and preferences • Purpose • Appropriateness test (Other products and services) • Based on knowledge and experience • Insufficient information for appropriate judgement • EXECUTION ONLY – Suitability/appropriateness does not apply

  8. Client protection • Information to clients • Depends on client classification • Retail – full and extensive information • Professional – on request • Information on nature and extent of risk • Proof of disclosing all information • Reporting to clients • Timeliness and comprehensiveness of reports

  9. Client protection • Best execution • Principle not strict rule • Implementing and monitoring policy that enables all necessary steps to be taken in order to insure best execution • Criteria for best execution • Price • Costs • Spreads/Liquidity • Market regulation • Execution and settlement risks • Ease of doing business, ....

  10. Final thoughts • Does increased client protection increases firms risks? • Cost vs. benefits • Sales efficiency • Post MiFID landscape? • “ ..., because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don't know we don't know.”Donald Rumsfeld

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