MiFID II

After a long legislative process, MiFID II is now applicable. Some practical issues remain, and further amendments of the directive to take into account environmental, social and corporate governance considerations are expected in the near future.

Although MiFID II was adopted on 14 April 2014, its implementation deadline was postponed to 3 July 2017 and its entry into force to 3 January 2018. MiFID II and its accompanying Regulation MiFIR represent a major overhaul of the first Markets in Financial Instruments Directive. They expand MiFID’s scope, adding further investor protections, increasing the requirements related to the trading of financial instruments and introducing new provisions for non-EU investment firms offering investment services and products in the EU.

The two texts implementing MiFID II into Luxembourg law were published on 31 May 2018.

On 29 December 2017, the CSSF issued a press release to clarify certain points regarding the application of MiFID II and MiFIR in Luxembourg. It stressed in particular that the provisions of MiFIR are binding and directly applicable in Luxembourg from 3 January 2018 and that, in accordance with the principles of EU law, MiFID II provisions conferring new rights or being more favourable (e.g. strengthening investor protection) than the current status shall also apply from 3 January 2018. As a result, existing provisions shall be interpreted accordingly.

A series of implementing technical standards have also been issued by European authorities over the last year, including specific documents of interest to the asset management sector (e.g. the ESMA report on product governance requirements or the ESMA Q&A on investor protection, which has already been updated a few times and the latest version of which was published in March 2018).

Although management companies are not in scope of the directive, they are impacted in practice. MiFID applies to all investment firms which create or offer investment products or services. This means that product manufacturers who are not directly subject to MiFID will have to put in place organisational arrangements that meet the requirements of the directive and accommodate the needs of their distributors in this regard. Questions remained, including with respect to the obligations for manufacturers and distributors of financial instruments in terms of control and governance, and to the design and distribution of financial instruments, the reinforcement of conditions for distributors to receive and retain inducements, rules on costs and charges, appropriateness and suitability issues, and the rules on investment research costs.

ALFI started work on draft Q&A on the directive’s implications on the investment fund sector. More than two and a half years of discussions in four sub-working groups later – representing some fifty meetings altogether – a first issue of the Q&A was published on 22 December 2017, and work continues on a second issue. The Q&A currently cover four topics related to investor protection: product governance, rules on inducements, costs and charges and appropriateness.

The developments surrounding MiFID will probably not end here. Many technical issues remain to be solved, for example, according to distributors, insufficient harmonisation of target market data, and the calculation methodology of transaction costs, which is also a point of concern under the PRIIPs regulation. In addition, new proposals from the European Commission were released on 23 May 2018 and aim to amend delegated acts to include ESG considerations into the advice that investment firms offer to individual clients. ALFI will monitor these developments closely.

Evelyne Christiaens
Head of the Legal Department, ALFI