MiFID II in short
The Markets in Financial Instruments Directive II (MiFID II) is a regulation that comes into force on 3 January 2018. MiFID II is intended to enhance investor protection and to establish a safer, more open and more responsible financial system. It is the European Union’s attempt at creating a single rulebook covering financial market activities and services.
The first step in a common EU regulation was the Investment Services Directive from 1993. The next step was MiFID I from 2007 that created a single market for investment services and activities to improve the competitiveness in EU markets. MiFID II is an expansion of the existing MiFID I combined with Markets in Financial Instruments Regulation (MiFIR). The financial crisis 2007-2008 showed deficiencies in MiFID I and the updated regulation has focus on transparency and investor protection.
Two other EU regulations are connected to MiFID II: PRIIPS (regulation on Packaged Retail Investment and Insurance Products) and EMIR (European Market Infrastructure Regulation). PRIIPS introduces a Key Information Document (KID) – a simple document giving key facts to investors in a clear and understandable manner so it has a connection to the investor protection rules of MiFID II.
EMIR regulation aims at reducing counterparty and operational risk in the Over the Counter (OTC) derivatives market, which was identified as a contributing factor to the financial crisis in 2008. One of the EMIR requirements was Legal Entity Identifier (LEI) that is now aligned with MiFID and is to be used in transaction reporting for some products.