MiFID stands for The Markets in Financial Instruments Directive. MiFID is a European Union law first implemented in 2007 with the goal of harmonizing regulation for investment services across the 30 member states of the European Economic Area (the 27 European Union members and Iceland, Norway and Lichtenstein). It was hoped that the legislation would increase competition as well as increasing consumer protection, replacing the previous Investment Services Directive.
The Markets in Financial Instruments Directive maintained the principles of the EU Investment passport introduced by the Investment Services Directive. But increased emphasis on home state regulation, this so called ‘MiFID’ passport is for example what allows Cysec regulated brokers to operate throughout the European Economic Area. MiFID aimed at maximum harmonization in an attempt to ensure that individual states did not ‘gold plate’ EU financial regulations at the cost of the fair playing field. Though it should be noted that different regulatory regimes within MiFID do offer different levels of protection.
The MiFID regulations have a very wide scope including all ‘investment services and activities’. If a firm is deemed to provide investment services and activities, it is subject to the MiFID regulations for these services and any ancillary services they provide. However if a firm provides only ancillary services they do not need to be regulated under MiFID. Firms covered by MiFID will be regulated in the home state which tends to be whatever country they have their offices registered too. Once a firm has gained MiFID authorization it will be able to offer services to individuals in other EU states, while being regulated in their home state.
The Future of MiFID?
Consultations into future financial regulations building on MiFID began in 2010 with a day of open hearing in Paris. Later in that year following a public hearing in September, the European Commission released a public consultation relating to the review of MiFID (often referred to as MiFID II). This consultation was released alongside a press release and FAQ, which can be found here. In October 2011, the EU Commission adopted formal proposals for a directive which would repeal the original MiFID II regulation and for new regulation which would also amend EMIR. EMIR is currently the piece of regulation responsible for the regulation of OTC derivatives (i.e CFD’s), central counter-parties and trade repositories.
During March 2012, Markus Feber MEP suggested a number of amendments to the Commission’s proposals to further regulate high-frequency trading and commodity price manipulation. However these proposals have cause a number of concerns within the financial community and new regulation may still be awhile away.