Ten years on from the start of the financial crisis and much continues to be written about the tumultuous events that marked a turning point in the global economy and resulted in renewed focus on financial markets regula- tion.
Fast forward and in less than 150 days, a key piece of legislation in response to the financial crisis is coming into effect
The second Markets in Financial Instruments Directive, commonly known as MiFID II, is aimed at further enhancing investor protection and market transparency and will materially change the way investors’ money is managed.
It is an extension of the first set of MiFID regulation put in place in November 2007, which was aimed at making markets more competitive and transparent.
But how will MiFID II impact private investors?
Simply put, it will oblige financial market participants, such asset managers, brokers, financial advisers and the venues where all financial instruments are traded, such as stock exchanges and other trading venues, to disclose all pre and post trade costs, charges and fees, in a standard format and upfront.
Looking at financial advisers, for example, there are two different types of advisers, which can affect the advice investors are given.
Independent advisers offer clients the full range of financial products and providers available in the market, whilst restricted advisers only offer a limited selection of products and/or providers.
And although an adviser or firm has to tell a client in writing what type of advice they offer, with the myriad of complex financial products available in the market, it can sometimes be confusing for an individual investor to know what is available or most suitable for them.
From January 2018, anyone offering financial advice will not only be required to make clear what type of advice they are giving but will also need to ensure that they do not mis-sell products and only offer them to investors with sufficient knowledge to understand the investments they are making.
The idea is to ensure that investment professionals are recommending solutions based on what is best for the client and not what is best for their balance sheet.
And going forward, any firm or adviser providing investment advice or selling an investment product to a private investor will be banned from receiving a fee, commission or any other monetary benefit for doing so.
Any third party payment received for this advice will therefore be passed to the private investor.
Again, this should ensure advisers are meeting their clients’ objectives, allowing them to make informed investment decisions based on the ability to better compare all available pro- ducts.
The regulation coming into effect is complex but, looking ahead, MiFID II will help create more transparent, harmonised and competitive markets for everyone.
For private investors, greater transparency and choice will ultimately allow them to make the best investment decisions based on their requirements.
And it is these characteristics that are central to London Stock Exchange Group’s Open Access philosophy.
London Stock Exchange Group operates a pioneering Open Access business model, offering all of our customers the ability to choose where to trade and clear their products.
We do not limit them to a “closed” silo model, tying in trading, clearing and the licensing of products to a specific venue.
In an age where transparency and consumer choice are paramount, Open Access, working in partnership and offering choice to our customers, underpins all that we do.
Sitting at the heart of the financial markets, London Stock Exchange Group is firmly committed to delivering the benefits of MiFID II and we are working closely with our customers to ensure their readiness for implementation.
We must not forget that robust financial markets not only impact financial market participants but will contribute to financial stability and the growth of the economy as a whole, now and over the coming years.