On Tuesday evening the the European Commission, the European Parliament and the Council of Ministers reached an agreement on MiFID II. Overall EuroFinUse welcomes the agreement and will continue its active involvement and hard work throughout the remaining process, with special attention for the upcoming level 2 legislation, to ensure the best possible outcome for end users of financial products.
MiFID II constitutes an important part of the Financial Services Action Plan (FSAP) of the European Union, designed to create a single European market in financial services. Whereas the objectives of MiFID II are to protect investors and ensure market integrity by establishing harmonized requirements to establish and promote fair, transparent, efficient and integrated financial markets, EuroFinUse retains reservations especially where consumer protection is concerned.
BETTER FINANCE also continues to insist on the importance of harmonised cost disclosure for plain vanilla and structured products to ensure a level playing field for retail investors, no matter what the distribution channel.
So what has been agreed?
Following two years of complex negotiations between the European Parliament and EU member states, MiFID’s overhaul has now resulted in a set of two pieces of legislation: a regulation, immediately applicable, dealing with transparency and access to trading venues and a directive governing authorisation for - and the organisation of - trading venues as well as investor protection.
From the perspective of retail investors, as clearly stated by Mr Sven Giegold - a Green MEP and member of the EP’s ECON Committee - only some aspects of the agreement can be seen as improvements since no agreement has been reached on the equal treatment of “insurance” products in relation to key issues such as transparency, tighter rules for honorary advisors and the European ban on dangerous or “consumer damaging” financial products.
Pressure from the German and the French governments undermined the Parliament's efforts to establish the same rights for clients of insurance products as for those of other investment products.
On a positive note, under the new regime hidden costs related to financial products will now have to be clearly disclosed. Investment firms operating an internal matching or crossing system to execute client orders will from now on have to acquire authorisation as a multilateral trading facility (MTF) in order to do so. The new rules also introduce a new multilateral trading venue - the Organised Trading Facility (OTF) - for non-equity instruments that are currently traded on organised multilateral trading platforms that have been blamed in the past for exacerbating the financial crisis. Limits will be put in place on how much share trading can take place anonymously in so-called "dark pools”. The OTFs will face a lighter regulatory regime than Regulated Markets, such as national stock exchanges. This was one of the main controversial points creating tension between the UK and Germany. The agreement now forces Germany to provide open access to its venues.
In an effort to curb, amongst others, food speculation, MiFID II will also introduce position limits in commodity markets to prevent traders from cornering the market, with market participants having to file detailed reports of positions more frequently.
Michel Barnier, the EU Commissioner for Internal Market and Services, said that “these new rules will improve the way capital markets function to the benefit of the real economy”.
Following the political agreement, technical and other issues will now have to be tackled by the European Securities and Markets Authority (ESMA) and then the European Parliament and EU Member States will have to formally approve the detailed proposal in order for it to take effect. The measure will be implemented by the second quarter of this year and become compulsory at the end of 2016.
Overall, BETTER FINANCE believes improvements benefitting en-users have been achieved, but much remains to be done.
Please read here the Financial Times article.