For trading and investment firms, changes brought about by Markets in Financial Instruments Directive II (MiFID II) will have multiple operational effects and a direct impact on sources of revenue such as fees, inducements and distribution of products. Compound these changes with the ones brought on by other regulations, and investments firms will have no choice but to consider a comprehensive, holistic approach to regulatory transformation.
MiFID II represents both a considerable challenge and a significant opportunity for firms to improve their organization and their way of doing business. The regulations are extensive and very complex, and over the next two weeks I’ll look at the three major hurdles firms will need to get over to seize the opportunities. I’ll start off by explaining the first.
Challenge: Provisions for investor protection
Firms will need to reshape their business models and cope with major new demands as provisions for investor protection covering the entire lifecycle of investment products and services are introduced.
The main MiFID II provisions affecting investor protection are:
- Stricter rules for product design and distribution.
- Provisions for transparent client segmentation.
- Limitations on investment benefits such as kickbacks and inducements from third parties.
- Recording of telephone conversations and electronic communications.
These rules for investor protection will affect many dimensions of operations. New processes and policies need to be created, such as product design and distribution, people such as client advisors will require specific training and qualifications, and innovative technologies will need to be in place to monitor compliance while keeping costs reasonable.
Next week I’ll dive deeper into the two other major challenges firms will be confronted with as MiFID II rolls out. Until then, to learn more, visit: