MiFID II is a regulatory framework enacted by the European Union which aims to bolster the European single market for investment services by harmonising standards and legislative requirements.
In this regard, the following are a few of the key objectives that MiFID II seeks to address:
1.Tighter Controls on the Financial Products that Reach You
MiFID II requires firms to determine that the financial products offered are client-specific, meaning that all relevant risks are assessed and understood before a product is distributed to you. This idea also applies when amendments to an existing financial product are made, hence making sure that the investor for whom it is meant for is taken into consideration, and that any risks associated with the product are adequate for those types of investor. In simpler terms, this framework should give you the ability to choose from a range of financial products which work in your interest and meet your investment requirements.
2.Improving Financial Markets Transparency on Costs and Charges
MiFID II improves transparency by requesting firms to disclose all the costs and charges incurred which relate to both the investment itself as well as any potential advisory costs. The rationale behind this is to provide you with a comprehensive and detailed breakdown on the costs that come part and parcel with financial products. This increased transparency should help you to better understand the nature and logic behind both a firm’s and a product’s charges, while also helping you to determine how much a firm charges relative to your investment returns.
3.Limitations on Third-Party Payments to Firms that Provide Investment Services
MiFID II limits the types of payments a firm can receive or pay when they provide investment services to you. In some circumstances, MiFID II imposes a complete ban on some firms receiving a payment or some other form of non-monetary benefits from third-parties. What this means for you is more confidence that the investment services provided are in fact acting with your best interest in mind, rather than for some other ulterior motive.
Every client that falls under MiFID II regulation, regardless of the client’s current or future residency will have peace of mind that their investments are well-secured under a comprehensive and robust EU wide regulatory framework.