What is the 'Markets In Financial Instruments Directive - MiFID'
The markets in financial instruments directive (MiFID) is a regulation that increases the transparency across the European Union's financial markets and standardizes the regulatory disclosures required for particular markets. The MiFID implemented new measures, such as pre- and post-trade transparency requirements, and set out the conduct standards for financial firms. The directive has been in force across the European Union (EU) since 2008. MiFID has a defined scope that primarily focuses on over the counter (OTC) transactions.
BREAKING DOWN 'Markets In Financial Instruments Directive - MiFID'
The stated aim of the MiFID is for all EU members to share a common, robust regulatory framework that protects investors. MiFID came into effect prior to the 2008 financial crisis, but changes were made in light of the crisis. One of the issues in the original drafts is that the regulatory approach to third country firms was left up to each member state, and that led to some firms outside the EU having a competitive advantage as far as easier regulatory oversight compared to firms inside the EU. This issue is being addressed through MiFID 2, which will harmonize the rules for all firms with EU clients. The Markets in Financial Instruments Regulation (MiFIR) works in conjunction with MiFID and MiFID 2 to extend the codes of conduct beyond shares to other types of assets, including contract based assets and structured finance products.
EU Regulatory Harmonization
MiFID is just one part of the regulatory changes sweeping the EU and impacting the compliance departments of all the financial firms - insurers, mutual fund providers, banks, etc. - operating there. Taken together with other regulatory initiatives like the General Data Protection Regulation (GDPR) and Markets in Financial Instruments Regulation (MiFIR), the EU is following through on its vision of a transparent market with clear rights and protections for EU citizens. As with any regulatory framework, many of the rules are tweaks upon existing regulations, such as the requirements for disclosure where a conflict of interest exists. However, several best practices, like the appointment of a single officer responsible for protecting client interests from within the firm, are now explicit requirements for firms wanting to access the EU market.