Ireland: MiFID II – Implementation Imminent

Introduction

The Markets in Financial Instruments Directive ("MiFID") came into force on 1 November 2007 and was implemented in Ireland by the European Communities (Markets in Financial Instruments) Regulations, 2007 as amended (the "MiFID Regulations")1. MiFID established a regulatory framework for the provision of investment services by investment firms and in this way established for the first time an effective single financial services market in the EEA.

The terms of MiFID made provision for a mandatory post implementation review2 and the European Commission (the "Commission") published a paper consulting on amendments to MiFID in December 2010. Following that consultation period, the Commission published draft legislative proposals in the form of

(i) a revised Directive which will be an amendment and restatement of MiFID, (the "MiFID II Directive") and;

(ii) a new Regulation which will set out requirements relating to trade transparency and the mandatory trading of derivatives on organised venues, (the "MiFID II Regulation"), (hereinafter collectively referred to as "MiFID II").

The financial crisis demonstrated weaknesses in some of the underlying principles of MiFID and highlighted areas needing reinforcement or revision in order to strengthen investor protection and to strengthen investor confidence. In addition, financial markets have changed enormously over the past few years. For example, it is generally agreed that MiFID led to the development of new trading platforms and activities which fell outside the scope of regulation. Furthermore MiFID had to be revised in order to deal with rapid technological changes such as the growth of automated trading. The proposals contained in MiFID II are therefore regarded as an essential part of on-going structural reforms in the aftermath of the financial crisis.

On 15 April 2014, the European Parliament adopted the MiFID II proposals. MiFID II was then formally approved by the European Council on 13 May 2014. The text which was approved by both the European Council and the European Parliament reflects what had previously been agreed between the various institutions3. It is expected that MiFID II will enter into force 20 days after its publication in the Official Journal of the European Union. All going to plan it is expected that the text of MiFID II will be published in the Official Journal of the European Union in June 2014.

The MiFID II Directive will require national implementation within a 30 month timeframe after its publication in the Official Journal of the European Union. The MiFID Regulation will not require national implementation and will apply from a date yet to be specified in the MiFID II Regulation itself. In this regard the implementation date for the bulk of the requirements contained in the MiFID II Regulation is 30 months after it enters into force, however certain provisions of the MiFID II Regulation will apply immediately following its entry into force. The MiFID II Regulation will be directly applicable in all Member States and it is hoped that this will minimise the scope for divergences in the interpretation of its requirements.

Separately the European Securities Markets Authority ("ESMA") has been asked by the European Commission to draft technical advice and to prepare regulatory technical standards and implementing technical standards (the "Level 2 Measures"). On 22 May 2014, ESMA launched a consultation paper (the "Consultation Paper") and a discussion paper (the "Discussion Paper") on MiFID II. This is the first step with regards to the preparation of the Level 2 Measures and represents an important part of the process of translating the MiFID II requirements into practically applicable rules and regulations.

The Consultation Paper covers all of the topics on which the European Commission has formally requested ESMA to provide technical advice for the adoption of delegated acts by the European Commission. Therefore the Consultation Paper focuses on; (i) investor protection; (ii) transparency; (iii) data publication; (iv) micro-structural issues; (v) requirements applying on and to trading venues; (vi) commodity derivatives; and (vii) portfolio compression. As ESMA is required to deliver its technical advice to the European Commission by December 2014 it is therefore subjected to a condensed consultation process. On the other hand, the Discussion Paper focuses on more innovative or technically complex topics in order to receive feedback from stakeholders for the preparation of regulatory technical standards and implementing technical standards. The feedback received on the Discussion Paper will provide the basis of a further consultation on the issues raised in the Discussion Paper.

This briefing seeks to look at the key changes which will be introduced by MiFID II which is expected to be implemented by the end of 2016/early 2017.

Scope

MiFID II will have implications for existing investment firms which are authorised under the MiFID Regulations and for firms that will be brought within the scope of the regulatory regime as a result of the changes contained in MiFID II.

MiFID II will expand the scope of MiFID at firm level as a larger number of investment firms will now fall within the scope of MiFID II for the first time. For example a broader range of commodities firms will now fall within the scope of MiFID II as the MiFID II Directive seeks to restrict the exemptions that a number of commodities firms currently rely on in order to ensure that they are outside the scope of MiFID.

Article 2(1)(d) of MiFID contains an exemption from authorisation for persons who do not provide any investment services or activities other than dealing on own accounts unless they are market makers or deal on own account outside a regulated market ("RM") or a multilateral trading facility ("MTF") on an organised, frequent and systematic basis by providing a system accessible to third parties in order to engage in dealings with them. Article 2(1)(d) of the MiFID II Directive restricts this "dealing on own account exemption" and provides that a firm will no longer be able to rely on this exemption if it is either (a) a member of or participant in a RM or MTF; or (b) if it deals on own account by executing client orders. In addition, Article 2(1)(i) of the MiFID Directive contains an exemption from authorisation for persons who provide to clients investment services in commodity derivatives, provided this is an ancillary activity to their main business when considered on a group basis and that the main business is not the provision of investment services within the meaning of MiFID or banking services under Directive 2000/12/EC. The MiFID II Directive seeks to restrict this exemption and provides that it will not apply to persons who deal on their own account by executing client orders.

Any firms which currently avail of these exemptions should monitor the new developments of MiFID II closely to understand whether they will need to become authorised to carry out MiFID business. In particular, it is likely that these changes are likely to have implications for many utilities, oil companies, metal traders, energy and commodity businesses and others that are active in commodity derivatives.

Interestingly, in the Commission's initial draft of the MiFID II Directive, custody was to become a core investment service (instead of an ancillary service). As such, this would have brought standalone custodians within the scope of MiFID. However, the text of the MiFID II Directive which was published on 18 February 2014 reinstates this service as an ancillary service. Therefore, it appears that standalone Irish custodians will continue to be authorised under the Investment Intermediaries Act 1995 (as amended) and will not be required to seek authorisation under MiFID II. In addition, MiFID II will expand the scope of MiFID at product level as a larger number of products will be covered by the new legislation. MiFID II brings emission allowances within the scope of MiFID by re-classifying them as financial instruments. This will have the effect of bringing spot carbon trading within the scope of MiFID.

In addition, non-advised sales of structured deposits will be subject to certain of MiFID's conduct of business rules.

Trading Venues

The Commission wants all forms of organised trading to take place on platforms subject to regulation and supervision. To this end, MiFID II introduces the concept of a new trading venue; Organised Trading Facility ("OTF") which is defined in the MiFID II Directive as meaning "a multilateral system which is not a regulated market or MTF and in which multiple third party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract". OTFs are broadly designed to capture broker crossing systems and inter dealing systems. It is intended that facilities on which no trade execution or arranging takes place, such as order routing systems and pure OTC trading (direct trades between counterparties on an ad hoc basis) will be excluded from this definition.

The MiFID II Directive requires that an investment firm or a market operator operating an OTF establish arrangements preventing the execution of client orders in an OTF against the proprietary capital of the investment firm or market operator operating the OTF. This factor is likely to be the key factor in distinguishing an OTF from a systematic internaliser ("SI").

The operator of an OTF will require authorisation under MiFID II and in this way will be required to adhere to the same conduct of business rules as MTFs, RM's and SIs. In addition, MiFID II sets a number of specific OTF organisational requirements. A request for authorisation must include a detailed explanation as to why the system does not correspond to and cannot operate as a MTF, RM or SI. This requirement implicitly recognises the scope for overlap between an OTF MTF, RM and a SI.

Footnotes

1 MiFID comprises three main pieces of legislation; the Level 1 MiFID Directive being Directive 2004/39/EC and the Level 2 measures implementing MiFID being the Commission Directive (2006/73/EC) and Commission Regulation 1287/2006, collectively referred to as MiFID.

2 Article 65 of MiFID.

3 On 14 January 2014, the European Commission published a Memo confirming that the European Parliament and the European Council had reached an agreement in principle on MiFID II.

To view full article click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Arthur Cox
Arthur Cox
Dillon Eustace
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Arthur Cox
Arthur Cox
Dillon Eustace
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions