ABBL

Origins of MiFID

MiFID, which stands for Markets in Financial Instruments Directive, entered into force on 1 November 2007.

In 1999, the European Commission decided to enhance the dynamism of the European Economic Area by putting in place a list of measures designed to make Europe the world's most competitive economic zone. They include measures relating to information technologies and an extensive financial chapter. This strategy, known as the "Lisbon agenda", comprises a substantial section on the "Financial Services Action Plan" (FSAP), which proposes key measures relating more specifically to the provision of investment services and the organisation of the financial markets. MiFID is the cornerstone of this plan.

The MiFID Directive 2004/39/EC replaces the Investment Services Directive (ISD) which dated back to 1993.

It is applicable to the EU 27 (the European Union), together with Iceland, Norway and Liechtenstein.

The aims of MiFID

MiFID has 6 major objectives:

1.  Strengthen competition on the financial markets by renaming the concentration rules (orders need to go to the national Stock exchange) thus permitting the emergence, alongside traditional stock exchanges, of MTFs (multilateral trading facilities), which are alternative trading hubs working in a similar way to existing stock exchanges. MiFID also introduces the notion of "systematic internalisers", i.e. banks or investment companies  that are able, provided that certain conditions have been fulfilled, to execute the orders of their customers instead of a Stock exchange.

2. Improve investor protection through a series of "know your customer" (KYC) measures requiring stringent rules of conduct and good internal organisation of the financial institutions.

3. Provide improved information for customers about the nature of the services and products, the duration of the investment, the costs and commissions involved.

4. Encourage cross-border transactions by enabling more services and products to be supplied from one Member State to another on the basis of a European passport, either directly or in the form of a branch established in the host country.

5. Guarantee and enhance transparency of the financial markets.

6. Propose rules of conduct and more stringent and uniform market supervision.

MiFID in Luxembourg

In Luxembourg, MiFID was transposed into national via the Law of 13 July 2007 on markets in financial instruments. In addition to transposing the directive, the law also introduced five new categories of Professionals of the Financial Sector (PFS). These new categories are financial intermediation companies, investment firms operating a Multilateral Trading Facility (MTF) in Luxembourg, Operators of a regulated market authorised in Luxembourg, Primary IT systems operators, Secondary IT systems and communication networks operators.

The ABBL helped prepare the Luxembourg banking industry for the introduction of MiFID via a number of working groups and the MiFID platform, consisting of MiFID experts and interested parties. Based on this work, the ABBL also published a MiFID handbook in 2007 for the benefit of its members, which proposed some non-legally binding guidelines for the Luxembourg banking industry.