Markets in Financial Instruments
Directive (MiFID) II review
Updated: October 2020
PROPOSED SOLUTIONS AND ACTIONS
Both, industry and investors, have clearly expressed their dissatisfaction with several measures that have
been implemented in 2018 in order to comply with the new requirements under MiFID II. ESBG has several
times asked to use the upcoming review of MiFID II to adjust the current requirements.
Against this background, ESBG welcomes the Commission’s proposals for a MiFID “quick fix” providing quick
solutions for some of the major problems that are inter alia:
- Proposal for an exemption for eligible counterparties and professional clients with regard to costs and
charges disclosure – the exemption should also cover the disclosure of inducements since they are regularly
disclosed in the cost information.
- Exemption for the product governance requirements for corporate bonds with make whole clause – the
exemption seems too narrow and should be widened.
- Introducing electronic format as the new standard for the provision of information (replacing paper-based
information which is rather antiquated).
Despite the proposal of the quick fix, which is very much appreciated, there are other important issues that
should be addressed in the regular review that should follow the quick fix:
- EBSG would be in favour of including a further category, between professional investors and retail investors,
for people who are not professionals, but trade very frequently within a certain reference period.
- We would recommend reviewing the requirement to record all telephone conversations, taking into account
the fact that ESBG members have learned that their clients do not like that their conversations are being
recorded and the recordings stored.
- The review should be used to remove existing differences between the provision of information on costs of
financial products according to PRIIPs and MiFID II. E.g., both legal bases use the wording ‘total cost’, but
they provide different results on the same financial instrument, as the total costs according to PRIIPs just
refer to product costs and the total costs according to MiFID II refer to service costs and product costs.
To avoid further confusion amongst clients, we strongly suggest using different wordings in the context of
PRIIPs and in the context of MiFID. A possible solution to the problem of reconciling the PRIIPs Regulation
and the Delegated Regulation with MiFID II would be to dispense with the presentation of costs in the KID
if the product in question was a financial instrument within the meaning of MIFID II. This would avoid giving
clients contradictory information while nevertheless informing them about the costs in accordance with the
requirements of MiFID II.
- Clarification that the ex-ante cost information can in certain cases (products with no product costs or sale
orders) be done in a standardised format via a cost grid so that investors do not have to receive redundant
cost information.
IDENTIFIED CONCERNS
ESBG identified several issues in the
implementation of MiFID II:
A tremendous client dissatisfaction with the flood of information. Data shows many investors are of
the opinion that they do not need all the information foreseen under MiFID II. They feel overwhelmed about
all the paperwork for (often simple) investment products. Regulators should therefore take into consideration
a further client category, between professional investors and retail investors (and understood as sub-category
of retail as argued below), in order to differentiate sophisticated retail clients (who trade frequently and usually
undertake a great number of investments, and who may not need the full set of information every time they
become active) and less sophisticated retail clients (who do just few investments in a lifetime and who should
always be provided with the full set of information).
Telephone conversation: option to waive voice recording. Many clients complain about the obligation to
record telephone conversations. If the client contacts the institution by phone, the parts of the conversation
that are relevant for securities must be recorded, and the voice files have to be stored for between five and
seven years (for investment advice and advice-free orders). Clients feel patronised and feel that the
relationship of trust with their advisors has been impaired.
Costs: Harmonisation of legislation such as MiFID II and the PRIIPs Regulation. The largest problems
for clients is, that they are provided with differing product costs for the same product (if it is both a PRIIP
and a financial instrument under MiFID II), even if the information in both cases is based on the same
investment amount of €10,000. This discrepancy, which has to be explained to clients and is difficult for
them to understand, is a result of contradictory calculation requirements in EU legislation.
Information requirements in the wholesale business. Professional clients and eligible counterparties are
familiar with the way capital markets function. They have significantly more knowledge and experience than
retail clients. Both their need for information and their need for protection are significantly lower than those
of retail investors. These client groups frequently include banks and institutional investors (which are usually
classified as eligible counterparties, though sometimes as professional clients), which meet the investment
firm on an equal footing. In many cases these market participants are not only familiar with the market
conditions and prices of the various providers but specify the conditions of the transaction in question
themselves.
WHY POLICYMAKERS SHOULD ACT
ESBG welcomes the background to the introduction of MiFID II, e.g. increased transparency
and investor protection. However, savings and retail banks experienced that many clients did
not welcome the changes that MiFID II introduced and complained about the amount of often
unhelpful (and overlapping) transaction-based information they have to go through, in particular
ex-ante and ex-post costs disclosures. The administrative burden and the additional steps do
not improve the investment experience. Many clients feel ‘misunderstood’ and wish for ‘opt
out’ options. They feel overwhelmed by the sheer amount of information and would rather have
the possibility to waive parts of it. Many investors want to decide for themselves if they wish
to do without certain information (such as constantly repetitive information on costs) or receive
information afterwards (following telephone orders, for instance). ESBG urges policy-makers
to streamline the respective provisions in the imminent review process and welcomes the
proposals by the Commission for a MIFID quick fix. Nevertheless, other issues need to be
addressed in the course of the review.
BACKGROUND
MiFID II (and MiFIR) started to apply in January 2018, with aim of bringing significant improvements to the
functioning and transparency of EU financial markets. To assess the overall functioning of the regime after two
years of application, MiFID II/MiFIR require that the Commission presents the Parliament and Council with a
report on the operation of the new framework, together with a legislative proposal for reform on areas that
would merit targeted adjustments. A review proposal for a “MiFID quick fix” by the Commission was published
on 24 July 2020. The proposal targets “short-term” amendments to MiFID II (such as exemptions for eligible
counterparties and professional clients with regard to costs and charges disclosure and the phase-out of the
paper-based default method for communication in favour of electronic format).