If you work for a US Investment Management firm, and are celebrating the notion that MiFID II won’t apply to you, it’s time to take off the party hats, and give this directive a second glance. MiFID II may just apply to you after all. This series, authored by IMP Consulting, will walk you through the highlights of the directive, and help to guide you in identifying how your firm may be impacted.*
The Rise of MiFID II
First, let’s look at MiFID, or what we refer to as “MiFID I”. MiFID is the Markets in Financial Instruments Directive (2004/39/EC). It has been applicable across the European Union since November 2007. Its goal was to improve the competitiveness of EU financial markets by:
- Creating a single market for investment services and activities
- Ensuring a high degree of “harmonised protection” for investors in financial instruments
MiFID I covered:
- Conducts of business and organizational requirements for investment firms
- Authorization requirements for regulated markets
- Regulatory reporting, to avoid market abuse
- Trade transparency obligations for shares
- Rules on the admission of financial instruments to trading
The financial crisis of 2008-2009 proved MiFID insufficient in ensuring the hoped-for level playing field and transparent market, because it really covered mostly equity. As a response, in walked MiFID II and its associated regulations “MiFIR.” The legislative proposal for MiFID II was adopted on October 20, 2011 by the European Commission to revise MiFID I. Due to feedback from the industry and certain delays, the implementation was pushed into 2017. The MiFID II Directive is set to become law in Member States on July 3, 2017. All entities impacted by MiFID II will have to begin reporting, as required, as of January 3, 2018. If your firm has to report under any of the requirements of MiFID II, you’ll need to be equipped to do so by that date.
Does MiFID II Apply to You?
There is a misconception that if your firm is a US asset manager, then you don’t need to worry about MiFID II, when in reality you do. Even if your firm doesn’t have a physical presence in the EU, there may be components of the rule that are still applicable to what you’re doing.
For example, in looking at the chart below, if you have no physical presence in the EU but provide sub-advisory services to an EU-subject manager, you will still need to comply with MiFID II because the manager (your client) is subject to the regulation. Or, if you’re marketing cross-border products and services to Euro clients, you will still need to comply.
But wait, there is more, and it can get a bit tricky for those who thought they were safe within the confines of the US.
Even if there is no direct applicability to the US firm, and even if the US firm is trading for US clients, the trade details must still be published in near real time if they are trading on an EU trading venue. These include “Regulated Markets” (RM), “Multilateral Trading Facilities” (MTF), Organised Trading Facilities” (OTF) and “Systematic Internalisers” (SI). This is to support the MiFID II goal of price transparency and standards of best execution.
So does MiFID II apply to you? As they say in the UK, it’s bloody likely.
Related Content: Preparing for MiFID II
* Our blog content is not intended to convey or constitute legal advice, and is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on your specific matter.