As of today, EU banks are required to comply with the new relevant regulatory framework on markets and financial institutions, based on the second Markets in Financial Instruments Directive, (MiFID II), and its corresponding regulation, MiFIR.
The purpose of this new regulatory framework is to strengthen current EU financial market regulations at different levels:
- Ensuring that organized trading takes place on regulated platforms.
- Introducing rules on algorithmic and high frequency trading.
- Improving the transparency and oversight of financial markets – including derivatives markets - and addressing some shortcomings in commodity derivatives markets.
- Enhancing investor protection and improving conduct of business rules as well as conditions for competition in the trading and clearing of financial instruments.
From an investor protection standpoint, the new regulatory framework introduces some relevant changes:
Enhancement of investor protection
MiFiD II aims to increase transparency regarding investment products and services. The investor will be provided, in good time, with sufficient clear and transparent information regarding the characteristics of investment services and financial instruments, especially in connection with their costs and charges, thus ensuring they are able to make well-founded decisions. The bank enriches the contractual and post-contractual information it provides, to ensure that the investor can track the performance of their investment products.
Additionally, new products are now considered “complex products. “Thus, when contracting structured deposits or certain investment funds - such as guaranteed funds or non-guaranteed target income funds – it will be necessary to assess the knowledge and financial proficiency of the investor, to warn him/her whether the product is or isn’t convenient for him/her.
More robust and solid processes for designing and distributing financial products
When the bank is the issuer of financial instruments, it will follow a solid process that covers the complete life cycle of the financial instruments, from their design, to their launch and their subsequent review. The bank has the procedures required to establish the required procedures to identify the target market of the products, to ensure they are compatible with the goals, characteristics and needs of the investor.
Training of the staff providing advice or infromation
MiFID II has also introduced new and significant requirements regarding the training of the staff providing investment advice or information about financial instruments. In 2017, BBVA carried out a challenging training program to attain the pertinent certifications approved by the Spanish National Securities Market Commission. Today, over 12,000 of its professionals already have a certificate. Thus, BBVA has more professionals certified by the European Financial Planning Association than any other financial institution. Also, to provide a better advisory service to its customers, BBVA enrolls its sales teams in training programs that allow earning the official certificates (EIP, EFA, EFP).Thus, BBVA validates the experience and knowledge of its sales teams, thanks to a certificate issued by a recognized independent agency, thus offering more reassurance to its customers. Also, BBVA’s sales managers have completed the course that has allowed them to take the test to obtain the Investment Fund Advisory Services Certificate (CAFI) from the IEB (Instituto de Estudios Bursátiles or Institute of Stock Exchange Studies), which will allow them to continue selling this type of products in compliance with MiFID II requirements.
Spain is still working to transpose the new regulatory framework in its entirety. On December 29, the Council of Ministers passed a Royal Decree-Law transposing MiFID II in the matters related to trading venues (regulated markets, multilateral trading facilities and organized trading facilities).