The Markets in Financial Instruments Directive (MiFID) is setting out a new institutional framework of operation for the harmonisation of markets in financial instruments in Europe. Below you may find more detailed information on what it is and how it affects you as an investor.
- What is the MiFID?
- What are MiFID provisions all about?
- How does this benefit investors?
- Whom does the MiFID concern?
- Which products and which services does the MiFID concern?
- Are there changes directly affecting investors?
- How will the way banks work be affected after the introduction of the MiFID?
- Will the way my transactions with the Piraeus Group are held change after the implementation of the MiFID?
• More specifically on Customer Categorisation
• More specifically on Suitability & Appropriateness Testing
• More specifically on Best Execution
• More specifically on the Conflict of Interest Policy
What is the MiFID?
The Markets in Financial Instruments Directive (MiFID) is the 2004/39/EC Directive of the EU which sets out a new institutional framework of operation for markets in financial instruments.
It is implemented in the single market of the European Economic Area (EEA), that is, in the 27 member states of the EU along with Iceland, Norway and Liechtenstein. In Cypriot Law, this Directive has been incorporated with the Investment Services and Activities and Regulated Markets Law 144(I)/2007 and it took effect on the 1st of November 2007.
What are MiFID provisions all about?
More specifically, the MiFID sets out the way in which:
• an agency or provider of investment services is to be controlled and monitored
• transactions are to be held between investment firms and customers in financial markets
• investment services are to be provided to customers
How does this benefit investors?
MiFID provisions change the way providers of investment services are organised, thus making transactions easier and promoting harmonisation of investment markets in Europe.
The most important change it brings about, however, is that it secures greater transparency and protection for investors, mainly those who do not have the necessary knowledge and experience. For example, MiFID provisions have an immediate positive impact on investors, as they provide for:
• categorising investors according to their investment knowledge and experience
• achieving the best result for the investor in the execution of his/her orders
• evaluating the suitability and appropriateness of investment transactions, so that each investor can be presented with the investment solution that is really right for them, and so that they do not undertake greater risk than they would be willing to
• notifying the investor about commissions and possible inducements
• notifying the investor about the company's Conflict of Interest Policy providing him/her with investment services
Whom does the MiFID concern?
The MiFID concerns companies and agencies which provide investment services in the EU, such as:
• Providers of Investment Services, Investment Brokerage S.A.s, Mutual Fund Management S.A.s
• Organised markets and market managers (e.g. stock exchanges)
• Central Banks,
as well as persons who carry out transactions involving investment products and persons who are provided with investment services.
Which products and which services does the MiFID concern?
The MiFID concerns all investment products / services, such as:
• Mutual funds
• Structured products, etc.
This excludes all things which are not investment products:
• current transactions in foreign exchange and merchandise
Are there changes directly affecting investors?
Many of the provisions in the MiFID are already being implemented by Piraeus Bank in the framework of its existing commitment to and policy on providing high-quality customer services. Thus, you do not stand to observe significant changes in the way in which you communicate and carry out your transactions with the Bank.
How will the way banks work be affected after the introduction of the MiFID?
- Customer Categorisation
The notion of customer categorisation is introduced, depending on the customer's knowledge and experience regarding the market and financial instruments, so as to provide special protection to customers who are not in a position to assess the risks they undertake. More specifically, each customer, before any action is carried out or before he/she acquires any investment product, he/she is placed in one of the three categories set out by the Directive: Retail, Professional, and Eligible Counterparties.
- Appropriateness & Suitability testing
For each customer, an investment profile must be created which will determine their targets and expectations from their investments, as well as the amount of risk they are willing to undertake. From that point onwards, all the products and services proposed should be consistent with their investment profile. Consequently, it is not allowed to propose to a customer products which are not "right" for them.
- Best Execution
The protection of investors is reinforced, through the introduction of rules regulating the management and the execution of customer orders, especially so through the requirement for achieving the best possible result for the customer (best execution).
- Conflicts of Interest
Particular requirements are introduced regarding the handling of conflicts of interest, the outsourcing of projects, the recording and storing of data, as well as the securing of the customers' assets.
- Harmonisation of the European investment markets
- The notion of an MTF (Multilateral Trading Facility) is introduced. Banks can now set up mechanisms through which OTC transactions in stocks will be possible.
- Now the same terms of competition as in other organised European markets apply, as for listing rules, which include derivatives on commodities and UCITS shares
- The cross-border provision of investment services becomes easier through the so-called "passport" for providers of investment services, with which investment firms will be able to also offer their services in other markets in other EU member states.
- Improved Controls & Supervision
- The competences of supervising authorities are broadened in terms of the exercise of their supervision work, and rules are reinforced even further to secure the credibility of the markets.
- Finally, banks and stock brokerage firms must from now on dispose of written policies and procedures, ensure their implementation and keep records which will enable controls to be enforced.