MiFID II: customer first

One must go back to April 2014, when the European Parliament approved MiFID II directive and a new MiFIR Regulation. This occurred after the European Commission proposed, in 2012, to revise MiFID II directive, in force since 2007, and after Europe went through one of the worst known financial crises.

The main objective sought by MiFID II is the implementation of a reform package that will make the financial system safer, more responsible and more transparent, in compliance with the G20 mandates about the most opaque and least regulated areas (negotiated instruments OTC and derivatives). MiFID II focuses on the customer and this one will benefit because not only will become the center of the advice, but it will be much more transparent.

About four years after its approval, 2018 begins with the entry into force of the new financial regulation that are called to change the business models of investment companies and the operational of financial markets. Despite the fact that it is one year late, several countries have not yet transposed this new European regulation into a national law. According to European Commission data, there are 11 countries that have not reported any progress in its transposition and 6 that have transposed it partially.

What does it really mean for customers?

MiFID II will radically change the relationship between banking and the customer. The rule seeks to protect the investor by requiring greater transparency with new rules or reinforcement of the existing ones on pre-contractual and periodic information to customers as well as cross-selling. Mainly, the client will have more information about the different costs in which he is incurring in each product he contracts and the company must justify the quality of the product offered by making a prior cost-benefit analysis.

With all this, the customer will be able to quickly identify if the products they offer fulfill his expectations, obliging financial institutions in some way to support their clients pedagogically so that they don´t get lost in a deluge of information that can cause greater confusion precisely in the case of an inexperienced costumer. In doing so, financial advisors will be required to obtain a specific certification on economics and finance where their level of training is ratified.

What measures should financial institutions adopt?

From the perspective of companies that provide investment services, communication requirements are established (RECORD) for operations executed on financial instruments that are traded in a trading center as well as on financial instruments that have as an underlying an index composed of financial instruments, negotiated in a trading center.

In addition, data on orders and all operations with financial instruments must be made available to the competent authority for five years.

Finally, the trading venues must furnish regulating authorities with daily data on the financial instruments admitted to trading in a regulated market.