Markets in Financial Instruments Directive (MiFID II)

Markets in Financial Instruments Directive (MiFID II)

The aim of this article is not to provide you with the most up-to-date information on the subject but to give you a general insight in the subject and its importance for the sector.


MiFID II, the Directive on Markets in Financial Instruments repealing MiFID I, was adopted in May 2014. Its transposition and application dates were delayed by one year: Member States had to transpose the new rules by 2 July 2017, and they have applied since 3 January 2018. All Member States have now transposed MiFID II.

The revised MiFID builds on the MiFID I rules that were already in place and it strengthens the protection of investors by introducing new organisational and conduct requirements.

During the legislative process of levels 1 and 2 texts, and during the development of level 3 measures such as ESMA guidelines, BIPAR and its Working Party on MiFID have been active in expressing their views to EU and national legislators on provisions affecting intermediaries and financial advisers.

The European Commission was required to review certain parts of MiFID II by March 2020 and is currently in the process of doing so. It launched a public consultation in this respect in February 2020 to which BIPAR responded.

Key points from an intermediary perspective in the level 1 Directive

Key points include the “analogous regime” for “opt-out” firms (firms that are regulated at national level and that do not hold clients’ money and only receive and transmit orders and/or provide advice can be exempted by Member States but have to comply with an “analogous regime”); the provisions on the ban of commission in the case of independent advice, the requirement of quality enhancement in the case of commissions, the knowledge and competence requirements, provisions adding unjustified burden to SME intermediaries and financial advisers such as product governance requirements, etc.

Level 2 rules

The MiFID II, level 1, Directive is completed by level 2 instruments. These include:

  • a Delegated Directive which contains specifications with regard to the safeguarding of financial instruments and funds belonging to clients, product governance obligations, and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits.
  • a Delegated Regulation that deals with organisational requirements and operating conditions for investment firms and defined terms.
  • a Delegated Regulation dealing, amongst others, with product intervention
  • Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) relating amongst others to requirements applying on and to trading venues, commodity derivatives, market data reporting, criteria when an activity can be considered an ancillary activity under MiFID, or regarding the information and requirements for the authorisation of investment firms.

For more details on levels 1 and 2 rules, please see the BIPAR Annual Report of 2016-2017.


The MiFID II Directive is also completed by level 3 Guidelines prepared by the European Securities and Markets Authority (ESMA). ESMA consulted on and published Guidelines on cross-selling, on complex debt instruments and structured deposits, on the assessment of knowledge and competence, on product governance (and the target market in particular), on the assessment of suitability of the members of the management body and key function holders, and on certain aspects of the MiFID II suitability requirements. In summer 2019, ESMA consulted on draft Guidelines on the MiFID II compliance function, adjusting existing 2012 guidelines to the adapted MiFID II rules. BIPAR responded to this consultation, focusing on the application of the proportionality principle in practice. ESMA published it final Guidelines in June 2020. In the final Guidelines, the suggestion of having a “core team within compliance staff members whose sole area of responsibility is MiFID compliance” was deleted.

Guidelines are not legally binding, but they are subject to the “comply or explain” procedure. From the moment that the Guidelines are published in all languages, a two-month period starts to run during which the national competent authorities have to notify ESMA as to whether they comply or intend to comply with the Guidelines, stating their reasons for non-compliance.

Questions & Answers (Q&As)

In 2019 and 2020, ESMA published various updates on its Q&As regarding the implementation of investor protection and intermediaries’ topics under MiFID II. The purpose of these Q&As is to “promote common supervisory approaches and practices in the application of MiFID II/ MiFIR for investor protection topics, providing responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of MiFID II/ MiFIR requirements”.

The updates deal with topics such as:

  • Investment advice on an independent basis
  • Inducements
  • Information on costs and charges
  • Suitability and appropriateness
  • Best execution
  • Provision of investment services and activities by third country firms
  • Product governance
  • Product intervention
  • Client categorisation
ESMA Q&As are not meant to constitute new policy and are periodically reviewed to update them where required and to identify if some of the material has to be converted into Guidelines and Recommendations.

In February 2020, ESMA launched a “common supervisory action” on suitability, meaning that national competent authorities simultaneously check the application of the MiFID II suitability requirements. This follows a similar exercise in 2018 regarding the MiFID II appropriateness test. ESMA stated the exercise would also help in the analysis of whether, and how, the costs of investment products are taken into account by firms when recommending an investment product to a client.

Review of MiFID II and next steps

The European Commission was required to review parts of MiFID II by March 2020. ESMA had to prepare various contributions to the Commission in this respect, for example on the impact of the MiFID II requirement to disclose any fees, commissions and non-monetary benefits in connection with the provision of an investment service or an ancillary service to the client, including its impact on the proper functioning of the internal market on cross-border investment advice.

Early 2019, ESMA sent a letter to the European Commission proposing to postpone its deliveries by 6 to 24 months, considering the uncertainties introduced by Brexit and aiming to ensure that enough experience is gathered on the application of MiFID II/MiFIR before beginning the review of the functioning of the various MiFID II provisions.

Vice-President and Commissioner for Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis stated such delay was unfortunate, adding, however, that delivering the analysis to produce those reports is particularly challenging until there is further clarity of the trading landscape post-Brexit.

ESMA started working on the review reports under MiFID II, amongst others with a call for evidence on the disclosure of inducements, costs and charges published in July 2019, to which BIPAR responded. Early April 2020, ESMA published its report containing technical advice to the Commission. In the advice, ESMA does not call for a complete ban on inducements under MiFID II. It does call on the Commission to assess the impact the MiFID II inducements regime has had on the distribution of retail investment products across the Union, the effects a ban on inducements would have on the different distribution models existing in the Union and what actions that could be taken to mitigate the risk of undesired consequences of aninducements ban.

ESMA added that to assess the potential positive or negative effects of a ban, “the impact of the bans as introduced in the Netherlands and the United Kingdom should be examined” and that such impact assessment be carried out and any following actions be taken in relation to all retail investment products, not just MiFID financial instruments. ESMA also suggests considering additional actions to also tackle investor protection issues arising in “closed-distribution models”.

Regarding the MiFID II costs and charges disclosure regime, ESMA also stated that investment products with the same characteristics should be treated the same.

The Commission launched its public consultation on the review of MiFID II in February 2020. The consultation asks amongst others if there should be an outright ban on inducements and looks at the existing rules such as on Product Oversight and Governance. Taking into account the Covid-19 crisis, BIPAR asked for an extension of the deadline to respond, which was accepted. BIPAR stated it believes the current MiFID II framework lacks proportionality for small financial intermediaries or advisers. Certain targeted improvements to the MiFID II regulatory framework would be welcome, but always after profound stakeholder discussion and considering the Covid-19 related situation. BIPAR recalled that the current system offers transparent choice for investors between different advice models in a strictly regulated and supervised system.

Next steps

The European Commission is expected to publish legislative proposals in the framework of the review by Q3 2020

BIPAR will continue to closely follow the review procedure.

- Published on June 2020 -

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