Regulatory prospects: 2012 and beyond

MiFID II (Markets in Financial Instruments Directive)

The Markets in Financial Instruments Directive, or MiFID, came into effect in November 2007. It governs investment services in the financial instruments field (such as brokerage, advice, dealing, portfolio management, subscription services, etc.) supplied by the banks, and the functioning of regulated markets and other trading platforms (referred to as “multilateral trading facilities”).

A proposal to review this directive was announced for 2011. The EC has kept to its commitment and both a directive proposal and a regulation proposal have been submitted for consultation on 20October 2011. The aims of these proposals are to make the financial markets more efficient, more resilient and more transparent, but also to strengthen investor protection. The new regulation will expand its cover to the trading platforms which were not regulated hitherto. It will harmonise the rules that apply to regulated markets and MTFs and will set up a framework regulating algorithmic trading activity. It will also increase the transparency of market participants trading equities and introduce new transparency regime for bonds, structured products and derivatives. It will then strengthen the role and the powers of the regulatory authorities, especially in terms of regulation and supervision of activities on commodities. Lastly, the revised MiFID will define stricter requirements for portfolio management, investment advice and offers of complex financial products like structured products.

The proposal has been transmitted to the European Parliament and to the European Council. The legislative process should last more than a year, definitive publication of the texts being forecast for the third or even fourth quarter of 2013. Transposition of the Directive should occur in the Member States by the end of 2015. As the regulation is not by nature a text subject to transposition, it could see its application delayed to the Directive’s transposition date for  reasons of consistency.