Book contents
- Frontmatter
- Contents
- List of illustrations
- Preface
- Introduction
- 1 The MiFID revolution
- 2 Origins and structure of MiFID
- 3 Client suitability and appropriateness under MIFID
- 4 Best execution
- 5 Financial market data and MiFID
- 6 Managing conflicts of interest: from ISD to MiFID
- 7 The MiFID approach to inducements – imperfect tools for a worthy policy objective
- 8 MiFID's impact on the fund management industry
- 9 MiFID and bond market transparency
- 10 The division of home and host country competences under MiFID
- 11 MiFID and Reg NMS: a test-case for ‘substituted compliance’?
- Glossary
- ANNEX I List of services and activities and financial instruments falling under the MiFID's scope
- Bibliography
- Index
3 - Client suitability and appropriateness under MIFID
Published online by Cambridge University Press: 04 August 2010
- Frontmatter
- Contents
- List of illustrations
- Preface
- Introduction
- 1 The MiFID revolution
- 2 Origins and structure of MiFID
- 3 Client suitability and appropriateness under MIFID
- 4 Best execution
- 5 Financial market data and MiFID
- 6 Managing conflicts of interest: from ISD to MiFID
- 7 The MiFID approach to inducements – imperfect tools for a worthy policy objective
- 8 MiFID's impact on the fund management industry
- 9 MiFID and bond market transparency
- 10 The division of home and host country competences under MiFID
- 11 MiFID and Reg NMS: a test-case for ‘substituted compliance’?
- Glossary
- ANNEX I List of services and activities and financial instruments falling under the MiFID's scope
- Bibliography
- Index
Summary
Introduction
MiFID's stated objective is ‘to further integrate the European financial markets, thus creating a real level playing field for all European stakeholders. In order to reach this objective, we need to guarantee an appropriate level of transparency and information as well as investor protection against the complexity of the market.’ To this end, MiFID introduces two new key concepts in European law, i.e. client suitability and appropriateness assessments. Together with the best execution requirement, they form the core building blocks of the new conduct-of-business rules of MiFID.
A broad conduct of business framework was in place in the ISD, also introducing elements of suitability and appropriateness at a very high level. However, similarly to best execution, its definition was vague and its enforcement was left to the country where the service was provided. The ISD requested firms to act in the best interest of their clients and to seek information about their ‘financial situation, investment experience and objectives’ (art. 11.1). The ambiguous wording led to a variety of rules, creating hindrances to an effective single market in securities trading for both professional and retail investors.
Under the MiFID regime, investment firms have to comply with an entirely new set of obligations, requiring them to re-map and re-classify new and already existing clients into three main categories. These are ‘eligible counterparties’, ‘professional clients’ and ‘retail clients’. The severity of conduct of business rules is graduated and predicated upon a client's classification, retail clients being afforded the highest level of protection.
- Type
- Chapter
- Information
- The MiFID Revolution , pp. 45 - 57Publisher: Cambridge University PressPrint publication year: 2009