MiFID
Investor protection
Goals
Offer European passport for investment firms
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allow sales of financial products and services throughout
EU
Harmonise investor protection
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driven by rapid increase in both number and
sophistication of financial services and products
POTEZA BPD d.d.
Impact – wider coverage
Financial and investment services
Financial instruments
Execution venues
POTEZA BPD d.d.
Whom does it apply to?
Markets
INVESTMENT FIRM/BANK
Financial Markets
Corporate Finance
Treasury
Investment Banking
Asset Management
Funds, UCITS
DISTRIBUTION
Retail, Private Banking, Institutional Sales
POTEZA BPD d.d.
MTFs
Syst. int.
Impact - areas
Organisation
General Organisation, Compliance, Internal Audit, Risk
Management, Outsourcing, Conflict of Interest, ...
Market Transparency
Pretrade – Posttrade Transparency, Transaction
Reporting to Regulators
Recordkeeping
Transaction Data, Contracts, ...
Conduct of Business
Client Classification, Information to Clients, Suitability
and Appropriateness Tests, Reporting to Clients, ...
Best Execution
Best Execution Policies, Monitoring of Policies
POTEZA BPD d.d.
Client protection
Client clasification
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“Official” classification
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Retail clients
Professional clients
Eligible counterparties
Movement between groups on request
“Unofficial” classification
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Firm specific policies
Breakdown by groups or/and financial products and
services
POTEZA BPD d.d.
Client protection
Suitability Test (Investment advice and Portfolio management)
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Obtain necessary information
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About knowledge and experience
About financial situation
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Source and extent of regular income
Total, liquid assets, investments, real property
Regular financial commitments
About investment objectives
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Duration
Risk profile and preferences
Purpose
Appropriateness test (Other products and services)
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Based on knowledge and experience
Insufficient information for appropriate judgement
EXECUTION ONLY – Suitability/appropriateness does not apply
POTEZA BPD d.d.
Client protection
Information to clients
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Depends on client classification
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Retail – full and extensive information
Professional – on request
Information on nature and extent of risk
Proof of disclosing all information
Reporting to clients
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Timeliness and comprehensiveness of reports
POTEZA BPD d.d.
Client protection
Best execution
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Principle not strict rule
Implementing and monitoring policy that enables all
necessary steps to be taken in order to insure best
execution
Criteria for best execution
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Price
Costs
Spreads/Liquidity
Market regulation
Execution and settlement risks
Ease of doing business, ....
POTEZA BPD d.d.
Final thoughts
Does increased client protection increases firms risks?
Cost vs. benefits
Sales efficiency
Post MiFID landscape?
“ ..., because as we know, there are known knowns; there are things we know we know. We
also know there are known unknowns; that is to say we know there are some things we do
not know. But there are also unknown unknowns — the ones we don't know we
don't know.”
Donald Rumsfeld
POTEZA BPD d.d.