Amid the regulatory tsunami hitting banks, financial institutions are especially interested in a new European regulation that will come into effect starting January 1, 2018. It’s Directive 2014/65/EU on markets in financial instruments - also known as MIFID II.
The directive, together with Regulation 600/2014 (known as MIFIR), will introduce drastic changes to the rules of the game for financial institutions and the level of protection for consumers of financial products - especially in terms of informational materials and the sale of investment products.
Its predecessor, Directive MIFID, which has been in force since 2007, represented a first step toward harmonizing regulation on stock markets, financial instruments and the relationship financial institutions that provide investment services have with their customers. Now, MIFID II seeks to “create a more secure, responsible and transparent financial system,” maintains the Spanish National Securities Market Commission (CNMV).
MIFID II / MIFIR can be divided into two main sections: i) investor protection and ii) market infrastructure and transparency rules for secondary markets.
How does this directive affect institutions and consumers?
“The adoption of this new regulation requires several different legislative actions. The CNMV, for example, has the challenge of creating more than 130 technical rules that need to enter into force on January 3, 2018,” explains Antonio San Frutos, a Professor at the CUNEF School of Finance and Management. In his opinion, the application of this directive will create costs for financial institutions in terms of new technological developments or staff training, which will be added to their regulatory costs. San Frutos recalls that “MIFID II, just like Basel III, is part of complying with the mandates of the G20 due to the severe international financial crisis of the last decade.”
MIFID II affects all actors in the financial industry. On the one hand, it brings changes to the market structure, such as new rules about how to inform the market when selling a financial instrument, for example. It also means technological changes to make the markets more secure - changes that seek to create a better system and more effective consolidation of transaction data.
MIFID II also involves aspects of improving corporate governance through proposals like tougher requirements to be a director or greater protection of market integrity.
But without a doubt, investor protection is the part of this regulation that has the greatest significance for financial actors and consumers. MIFID II takes MIFID I one step further, putting greater emphasis on financial advisory services and on providing customers more information of higher quality when they purchase an investment instrument.
MIFID II takes customer classification farther than MIFID I. Now, investment services companies will have to clearly identify the target group of investors for each product, with an appropriate level of risk and advisory services for each of them.
One of the other main changes in MIFID III is the requirement for financial institution employees who provide information or advice on financial products or investment services to receive training and possess certain knowledge. Antonio San Frutos recalls that staff training and certification of their knowledge and skills is one aspect of MIFID II that will have the greatest significance for banks, “since they have to make sure that all staff providing related services – several thousand employees – have the necessary knowledge and skills to meet the legal and regulatory requirements, as well as ethical standards.”
In this regard, BBVA has pre-empted this regulation entering into force. It will affect 11,300 of the bank’s 30,000 employees in Spain and currently more than 10,500 have been certified. This makes BBVA the financial institution with the most professionals certified by the European Financial Planning Association (EFPA)
Furthermore, in order to provide customers the best financial advice, BBVA enrolls its sales teams in training programs to obtain official certificates (DAF, EFA, EFP). This validates their experience and knowledge, as the certification is issued by a renowned, independent agency, which provides the greatest guarantees for customers.