What is MIFID 2?

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On 3 January 2018, the new European Financial Markets Directive MiFID 2 (Markets in Financial Instruments Directive) came into force throughout the European Union. The directive regulates the financial markets of the European Union and replaces the previous European regulation. The Union’s aim was to improve the transparency of European financial markets (including Liechtenstein, Iceland and Norway). The ultimate goal, that is, the main reason why European legislators moved forward with this decision, was of course to protect savers and retail investors. To make the markets more transparent, MIFID 2 has imposed new rules on banks, brokers and asset managers, especially with regard to products and services. First, it was necessary to create some kind of detailed and explicit labelling of financial assets. The service providers, who, with the previous guideline, only had to prepare an analysis prospect for the individual products or instruments, now have to prepare a key information sheet that contains an explanatory summary of the financial package made available to customers. The express aim of this is to compare the customer’s risk profile with their willingness to lose. In short, the European legislators want to provide savers with details on both the return and the risks. These details contains an explanatory summary of the financial package made available to customers. The express aim of this is to compare the customer's risk profile with their willingness to lose. In short, European lawmakers want to provide savers with details on both returns and risks. These details contain an explanatory summary of the financial package made available to customers. The express aim of this is to compare the customer’s risk profile with their willingness to lose. In short, the European legislators want to provide savers with details on both the return and the risks.

The second important innovation concerns the transparency of the commissions: all cost groups must be shown in detail with a price. With previous legislation it so happened that, for example, only the issuing commission of an investment fund was expressed in euros – the rest was expressed in percent. Even in the reports and periodic updates that are sent to customersmust now be shown separately and expressed in monetary terms. The KID (Key Information Document) must, in fact, always contain all cost elements, the analysis prospect on the return on individual products and the analysis methods (whether market-related or more specific), as well as the explicit declaration of the service – an independent consultation.

According to the guideline, the document must meet the criteria of clarity, synthesis and comprehensibility. Finally, each product must be rated by the service provider (with a further increase in their own responsibility) with a risk level from 1 to 7 in order to make the investor aware of the potential risk.

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