How will MiFID II impact your business?

Although an important section of the reform concerns markets functioning and trading which will certainly impact the ratio cost/efficiency of the securities trading value chain. The changes proposed to some of the investor protection rules are likely to profoundly impact the investor front end and the distribution of investment funds. Luxembourg as a fund and private banking market has to assess the impact and to anticipate the changes.

The following subjects are of key interest for the impact assessment:

1. Scope

  • Structured deposits ( eg index or commodity-linked structured deposits) are added to the list of MiFID financial instruments and will as a result be subject to MiFID rules on selling or advice.
    Industry impacted: Private Banking and Retail Banking

2. Exemptions

  • Stricter exemption rules for Member States to exclude certain entities from MiFID scope (eg IFAs) and application of authorisation and conduct of business rules to these entities (even if exempted).
    Actors impacted: IFAs, entities responsible for sub-distribution network

3. Authorisation and operating conditions for investment firms

  • Introduction of governance provisions (eg composition, functioning of management body, clarification on roles and responsibilities) ;
  • Organisational requirements (eg around algorithmic trading activities, minimum telephone record requirements).
    Industries impacted: All banks and investment firms

4. Investor protection rules

  • Inducements: prohibition of trailer fees in relation to investment products placed to investors ;
  • Investment Advice:
  • Enhancement of client information duties ;
  • Documentation of suitability assessment performed when providing advice.
  • “Execution only” services:
  • Clarification of the list of financial instruments considered as non-complex. Certain types of UCITS would be excluded from the non-complex category of financial instruments ;
  • Periodic reporting:
  • On complex products (e.g. performance scenarios, quarterly reporting & valuation, material modifications) ;
  • On Best Execution (publication of data in relation to the quality of execution for both execution venues and investment firms).
    Industries impacted: Private Banking, investment firms, product manufacturers and distributors