With impending changes to the finance sector looming, it’s important for both businesses and investors to get to grips with the latest Markets in Financial Instruments Directive, or MiFID II.

The EU legislation is the second part of original legislation introduced in 2007, designed to regulates firms who provide services to clients linked to ‘financial instruments’. This includes shares, bonds, units in collective investment schemes and derivative, as well as the venues where those instruments are traded.

The changes are currently set to take effect from 3 January 2018, with the end goal of increasing transparency in the sector, lowering the costs of market data and improving efficiency in trading behaviour. As a wide-ranging piece of legislation, MiFID II has the potential to affect a large proportion of firms in the sector.

What does the legislation do?

 

The legislation hopes to make the industry more transparent, approachable and increase trust in the sector. The price of financial advice often puts off potential investors, especially millennials; most advisory services charge a standard 3 percent, but there can be hidden ongoing charges of 0.5 to 1 per cent on top. MiFID II will mean firms will have to be clearer about their charge, and provide investors with a complete breakdown of their costs and charges as well as costs associated with managing your investments.

They will also need to be more careful about the financial advice they give out, assessing the suitability of their advice and reassessing whether it is still suitable at least once a year. They also need to be more open about how independent they are, and whether they have any conflicts of interest.

The recording of both mobile and landline calls will become obligatory, with the information needing to be kept secure for five year period in a secure and professional manner.

How does it affect investors?

As part of the legislation, investment managers are required to keep up-to-date information on their clients. In the next few months before the legislation comes into force, your investment management team will ask your for updated personal details – if you don’t reply to their request, you will be prevented from trading as of January 3rd.