Share

EU launches last crisis-battling finance reform

Paris - An EU directive called "MiFID II", the last of the big reforms sparked by the financial crisis, entered into force on Wednesday with the promise of improving financial market transparency and offering better protection to investors.

'Watershed moment' 

"MiFID II marks a real watershed moment for financial regulation," said Catherine McGuinness, head of the City of London Corporation lobby group.

"It will be the last major piece of regulatory reform following the financial crash of 2008," she said in a statement on Tuesday, adding that "financial and professional services firms have worked hard in recent times to implement these onerous and complex changes".

It is that very complexity that caused the implementation of the directive, first planned for January 2017, to be postponed by a year to give companies time to adapt.

Some financial market operators in Germany, Britain and France were given even more time, in some cases until July 2020.

Adopted in May 2014 the new rules - the full name of which is "Markets in Financial Instruments Directive" - are to address the weaknesses that became apparent during the financial crisis of 2008 and 2009.

They also aim to give retail and institutional investors extra layers of protection.

Winners and losers 

"The new rules will subject all businesses involved in the distribution and trading of financial instruments across Europe to a changed, and in many cases, more stringent regulatory framework," rating agency Standard and Poor's said Wednesday.

"Over the longer term, the disruptive nature of this major regulatory change will become more apparent, and the winners and losers will likely emerge more clearly," said S&P analyst Giles Edwards. "There will likely be more losers than winners."

Banks, asset managers, brokers and other market operators will all have to grapple with the new measures and supply proof to supervisory bodies that they are playing by the rules.

This implies, among other things, major new information technology capacity and a deep transformation of workflows to guarantee the viability of information.

For example, the directive forces companies to identify their target investors for each type of security on offer, and measure the level of financial knowledge of customers and their capacity to take on risk.

Not just shares 

It also extends protection measures to professional investors that were previously granted only to retail investors, and obliges them to warn clients in the event of strong volatility in their investments.

The directive also strengthens transparency requirements for share investments and broadens them out to other financial instruments, including bonds and derivatives, trades in which must now be reported before and after each transaction. Failure to do so will result in fines.

Financial companies will also have to provide detailed information to clients of the cost of trading in financial instruments, notably by separately identifying charges and commissions.

The aim is to shed more light on the earnings of intermediaries and limit over-the-counter deals seen as too opaque.

There will also be additional controls over electronic trading at great speeds, such as high-frequency trading.

Researching research 

In addition, the directive obliges banks and brokers to charge for research notes written by their analysts for investment fund clients and portfolio managers.

Such notes help investors make informed decisions on companies or economic data.

Research is often used as a marketing tool by banks and brokers when they approach clients but its price is a topic of debate, as is what goal banks and brokers are actually pursuing by disseminating their insights.

"The question the regulators are asking investment banks is: Who is your client?" said Maxime Mathon, head of communications at research body AlphaValue.

"When you are a big investment bank working for an asset management company you sell it your research, but also conferences with management of this or that company. In fact you are at the crossroads between the issuer and the investor," he told AFP.

It follows, according to Mathon, "that you are no longer independent because you are selling access to a company more than you are selling critical research on that company".

MiFID II's call for a breakdown of research costs will, it is hoped, improve transparency.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders