Over recent years, there has been a wealth of regulatory change which combined with the swiftly changing operational environment has created an increasingly complex compliance landscape. Not only has it now been over three years since MiFID II was introduced, but the UK has also officially left the European Union. To address any confusion around changes to the regulatory financial services landscape in Europe and in the UK, this article recaps some of the main differences between MiFID and MiFIR (or MiFID II and MiFIR), and provides an overview of the effect of Brexit on the EU rules.
What is MiFID II and MiFIR?
The Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) are the guidelines and rules that govern the European financial markets. They were created to strengthen the investor protection, increase transparency, and make these markets more efficient and resilient.
What is the difference between MiFID and MiFIR?
MiFID II and MiFIR are interconnected and strive to achieve the same results, however, they are different in the way they are implemented. The main difference between MiFID and MiFIR is that the directive (MiFID) sets out the goals that EU member states should strive to meet, whereas the regulation (MiFIR) imposes rules that all countries must follow.
MiFIR on the other hand is a binding legislative act that applies directly in all member states and needs to be implemented in its entirety in all financial services firms across the European Union.
MiFIR is particularly known for its transparency requirements which impose reporting rules on authorised firms. MiFIR Transaction Reporting is an obligation on authorised financial services providers that requires them to send all their trade data at T+1 intervals to an Approved Reporting Mechanism (ARM).
MiFID II vs MiFIR in simple terms:
| MiFID - Directive | MiFIR - Regulation |
What is it? | A legislative act that presents goals that countries in the EU need to achieve. | A binding legislative act with rules that all member states must meet. |
How is it implemented? | Locally - individual countries can devise their own laws on reaching the goals. | Centrally - all member states need to comply with the regulation as it is set out. |
When was MiFID II vs MiFIR introduced?
MiFID was first introduced in 2004 and came into effect in 2007. However, it was replaced by MiFID II on January 3, 2018, to further harmonise the rules for financial services firms with EU clients. Compared to MiFID I, MiFID II is a much wider-ranging legislation and has been characterised as one of the cornerstone pieces of the European financial services legislation. MiFIR came into effect on 3 January 2018 alongside with MiFID II.
Where does MiFID II and MiFIR apply?
MiFID II and MiFIR apply to all regulated financial services firms undertaking MiFID business in the EU and those firms providing services cross-border. This includes data reporting service providers, investment and fund managers, bankers, traders, exchange officials, and all businesses across the globe which provide investment services or perform investment activities in the European Union.
What happens to MiFIR and MiFID in the UK after Brexit?
Both MiFID II and MiFIR have been adopted locally by the UK, and the UK regulator, the Financial Conduct Authority, has played a key role in shaping European regulations. However, there are fears in the EU that the FCA will lighten the local rules to create a more competitive environment for UK firms. In fact, the FCA has already announced it is reviewing a number of aspects of MiFID II, including the effectiveness of the RTS27 reporting and the later phases of the SFTR regulation.
When it comes to MiFIR Reporting, there has been some change already. This is because both the UK and the EU now support individual MiFIR reporting schemes.
So whilst the MiFIR reporting obligations for UK firms are similar to the EU requirements, there will be some instances where firms will be required to report twice, to satisfy both EU and UK MiFIR reporting requirements. For example, as discussed in a previous blog, when a EU investment firm has executed its transactions via a UK branch or vice versa, the entity now has a dual reporting obligation. The branch is no longer able to discharge the reporting obligations by transmitting orders to the other entities. As a result, investment firms that operate in both regions now need to be contracted to both a UK Approved Reporting Mechanism (ARM) as well as an EU ARM to allow the functionality of dual reporting.
Will there be a MiFID 3? Or Could Brexit bring MiFID III?
When MiFID II celebrated its second birthday, the European regulator started to prepare a series of review reports on the effectiveness of MiFID II - making many wonders if there could be a MiFID III on the horizon. Ever since its implementation, firms have been complaining about the costs and unclear benefits of MiFID II. For example, the transparency data delivered through the Trade Reporting regimes has been a significant issue. The possibility of a third revision - a MiFID III - could be a welcome change to address some of the challenges and improve the quality of data regulators use to monitor for market abuse and insider dealing. However, the possibility of a MiFID III also sparks concern across financial services firms since they have already invested significantly in their technology and people in order to meet the latest iteration of the regime.
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FAQs
EMIR focuses on three primary objectives: reporting, clearing, and risk mitigation. However, the scope of MiFID II is limited to OTC derivatives. The clearing obligation under EMIR also applies to FCs and NFCs both of which need to clear OTC derivative trades through an authorized CCP.
What is the difference between MiFID and EMIR reporting? ›
Both are T+1 reporting regimes and there is a large overlap in the instrument set that they cover. However, there are distinct regulatory drivers behind each regime: MiFIR transaction reporting is primarily used to detect market abuse whilst EMIR trade reporting is used primarily to monitor for systemic risk.
What are the main changes in MiFID II? ›
What is changing? The EC's MiFID II 'Quick Fix' Directive, which was implemented in February 2022, included the move to electronic communication methods, specifying that all information required to be provided to clients or potential clients should be provided in electronic format.
What is the difference between MiFID II trade and transaction reporting? ›
The main difference relates to the respective audience and purpose: trade publication (TP) (also often called “trade reporting”) is directed to the public and made for disclosure purposes, whereas transaction reporting (TR) is made to regulators for oversight of transactions.
What is MiFID II in simple terms? ›
In simple terms, MiFID II is an EU regulatory framework designed to regulate financial markets and improve protections for investors. MiFID II aims to standardise practices throughout the EU and brings a larger number of firms under the supervision of an EU financial regulator.
What is reportable under MiFIR? ›
The transaction reporting obligation under MiFID II/MiFIR captures: financial instruments which are admitted to trading or traded on a trading venue or for which a request for admission to trading has been made, financial instruments where the underlying is a financial instrument traded on a trading venue, and.
Who is subject to MiFIR? ›
Scope of MiFIR Transaction Reporting Obligations
MiFIR Transaction Reporting applies to European Economic Area (“EEA”) and United Kingdom ("UK") Investment Firms ("Investment Firms") and also to Investment Firms that use a broker within the IB Group ("IB Group") to execute orders.
What falls under the scope of MiFID II? ›
MiFID II – Products and transactions in scope
It covers notably cash equity, fixed income, equity derivatives, commodity derivatives, credit derivatives, emission allowances. Some instruments are only subject to some limited requirements: structured deposits, structured financing transactions.
What is MiFID II reporting? ›
MiFID II broadens the scope. of transaction reporting to capture: – Financial instruments admitted to trading or traded. on an EU trading venue or for which a request for admission has been made.
What are the reporting requirements for MiFID II? ›
MiFID II Transaction Reporting. MiFID II Transaction Reporting requires investment firms to report complete and accurate details of their transactions to their competent authorities, no later than the close of the following working day. This opens in a new window.
It is the foundation of financial legislation for the European Union, designed to assist traders, investors, and other participants in the financial sector. The primary goal of MiFID II is to keep financial markets strong, fair, effective, and transparent.
Are FX trades reportable under MiFID II? ›
The EC has determined that FX Forward contracts remain outside the scope of MiFID II if they satisfy all of the following conditions: The contract for deliverable FX is physically settled. At least one of the parties to the contract is a non-financial counterparty.
What are the 3 key expectations of the regulator when submitting transaction reports? ›
Complete and accurate data is critical to transaction reporting.
...
Data quality
- information about the financial instrument traded.
- the firm undertaking the trade.
- the buyer and the seller.
- the date/time of the trade.
Whereas the term “trade” implies an exchange, which is necessarily based upon trust and a long-term relationship, the term “transactions” implies an exchange based on an agreement without a relationship and not necessarily dependent upon trust.
What are the principles of MiFID? ›
MiFID's fundamental principle is to categorize client protection levels depending on the level of risk tolerance and financial instruments and services.
Does MiFID apply to the US? ›
MiFID II, however, only applies to asset managers that have a physical presence in Europe and that are operating under a MiFID permission and regulated by a European regulator. As a result, US asset managers are not directly regulated by MiFID.
Where is MiFID II applicable? ›
MiFID II applies to MiFID firms, i.e. those Financial Services businesses undertaking MiFID Business anywhere in the European Economic Area ('the EEA').
What is Article 20 and 21 MiFIR? ›
Articles 6, 10, 20 and 21 of MiFIR require European Investment Firms (IFs) to make public, through an Approved Publication Arrangement (APA), post-trade transparency information in relation to financial instruments which are traded on a Trading Venue or traded over-the-counter (OTC)/off exchange.
Which transactions must be reported to the FIU? ›
Suspicious Transaction/Activity Reports (STRs/SARs)
The Proceeds of Crime Act (POCA) and the Anti -Terrorism Act (the ATA) require that a STR/SAR be made to the FIU by Reporting Entities when they know or have reasonable grounds for suspicion of Money Laundering or Financing of Terrorism.
What is the meaning of MiFIR? ›
The Markets in Financial Instruments Regulation accompanies the European Union's second Markets in Financial Instruments Directive or Mifid II. As Mifir is a regulation, it applies directly to EU member states.
Stock CFDs of shares trading on EEA trading venues (example BP, BMW CFDs) Stock Index CFDs of based on Equity Index Futures trading on EEA trading venues (example DAX, CAC and FTSE CFDs) Fixed Income CFDs based on Government Bond futures trading on EEA trading venues (example GILT and BOBL futures)
What financial instruments are under MiFID II? ›
Financial instrument (MiFID definitions)
- Financial Instruments Reference Data System (FIRDS)
- Commodity derivatives.
- OTC derivatives.
- C6 energy derivatives contracts.
- Physically settled commodity derivatives in MiFID II.
- Contracts that must be physically settled.
As referred above, MiFIR is a set of rules that is being created alongside the new MiFID II directive. Although MiFIR was technically passed as its own regulation, it nearly is always referred to in connection to MiFID II.
What is MiFIR Article 26 transaction reporting? ›
Article 26(5) MiFIR
The operator of a trading venue shall report details of transactions in financial instruments traded on its platform which are executed through its systems by a firm which is not subject to this Regulation in accordance with paragraphs 1 and 3.
What are the transparency requirements for MiFID II? ›
Under MiFIR, the post-trade transparency requirement necessitates disclosure to be made as close to real time as technically possible, and in any case within one minute of the relevant transaction. This maximum delay of one minute represents a reduction from the current three minutes allowed under MiFID.
What is the difference between MiFID and non MiFID? ›
This will require firms to keep records of transactions and translate them into statistical data in a specified format. Non-Mifid firms are exempt from these requirements. Mifid firms will be required to follow separate Handbook rules when investigating complaints into Mifid business, whereas non-Mifid firms will not.
What instruments are eligible for MiFID? ›
Equities, commodities, debt instruments, futures and options, exchange-traded funds, and currencies all fall under its purview.
Does MiFID apply to non EU clients? ›
where their clients are located and irrespective of where the relevant instrument may be listed or traded. In this respect, MiFID is refreshingly non-extraterritorial and its conduct rule protection measures do not apply even to business conducted by non-EU branches of EU firms.
Does a CTR trigger an audit? ›
Having an IRS Currency Transaction Report on your file increases your likelihood of being audited, which is one of the reasons even people who have nothing to hide try to avoid the CTR.
What is the difference between regulatory reporting and financial reporting? ›
Financial reporting forms the basis for regulatory reporting. The main difference between financial reporting and regulatory reporting is the audience: whereas financial reporting is mainly targeted towards investors and creditors, the main addressees of regulatory reporting are banking supervisors.
Types of currency transactions subject to reporting requirements individually or by aggregation include, but are not limited to: deposits and withdrawals, automated teller machine (ATM) transactions, denomination exchanges, loan payments, currency transactions used to fund individual retirement accounts (IRAs), ...
What are the 4 types of trades? ›
- Day Trading. Day trading is perhaps the most well-known active trading style. ...
- Position Trading. Some actually consider position trading to be a buy-and-hold strategy and not active trading. ...
- Swing Trading. When a trend breaks, swing traders typically get in the game. ...
- Scalping.
So, in this blog, we'll discuss the 3 different types of international trade – Export Trade, Import Trade and Entrepot Trade.
- Export Trade. Export trade is when goods manufactured in a specific country are purchased by the residents of another country. ...
- Import Trade. ...
- Entrepot Trade.
Here we give a lowdown on the key categories of stock market trading:
- Intraday trading. Intraday trading is also known as day trading. ...
- Delivery trading. ...
- Swing trading. ...
- Positional trading. ...
- Fundamental trading. ...
- Technical trading.
EMIR mandates reporting of all derivatives to Trade Repositories (TRs). TRs centrally collect and maintain the records of all derivative contracts. They play a central role in enhancing the transparency of derivative markets and reducing risks to financial stability.
What falls under MiFID? ›
MiFID sets out the authorisation requirements for investment firms, including detailed information that firms must provide to the relevant national regulator. MiFID also contains some rules relating to changes of control over investment firms.
Who needs to report EMIR? ›
Who should report under EMIR? EMIR establishes the reporting obligation on both counterparties that should report the details of the derivative trades to one of the trade repositories (TRs), i.e. the buying party should report and the selling party should report.
What is MiFID II classification? ›
MiFID II categorises local authorities as retail clients by default, with the ability to opt‑up to professional client status (under MiFID, local authorities were per se professional clients).
What is EMIR regulation in a nutshell? ›
The European Market Infrastructure Regulation (EMIR) is an EU regulation aimed at reducing systemic counterparty and operational risk and thereby prevent future financial system collapses. Its focus is regulation of over-the-counter (OTC) derivatives, central counterparties and trade repositories.
What is EMIR reporting for dummies? ›
What is EMIR reporting? EMIR requires anyone involved in the trading of derivative contracts to report on the details of each trade. Reports are filed with Trade Repositories that collate the data and provide it to financial regulators who use it to monitor for systemic risks within the market.
EMIR impacts market participants in the EEA (European Economic Area) and market participants outside of the EEA trading with an EEA counterparty.
What is the purpose of MiFID II? ›
The main objectives of MiFID II include the pursuit of harmonised regulation across EU financial markets, increased competition between EU financial markets, ensuring appropriate levels of investor protection, and strengthening of supervisory powers.
Who does MiFID apply to? ›
MiFID II governs the provision of investment services in financial instruments. It applies to investment firms, wealth managers, broker dealers, product manufacturers and credit institutions authorised to carry out MiFID activities.
When MiFID II celebrated its second birthday, the European regulator started to prepare a series of review reports on the effectiveness of MiFID II - making many wonders if there could be a MiFID III on the horizon. Ever since its implementation, firms have been complaining about the costs and unclear benefits of MiFID II. For example, the transparency data delivered through the Trade Reporting regimes has been a significant issue. The possibility of a third revision - a MiFID III - could be a welcome change to address some of the challenges and improve the quality of data regulators use to monitor for market abuse and insider dealing. However, the possibility of a MiFID III also sparks concern across financial services firms since they have already invested significantly in their technology and people in order to meet the latest iteration of the regime.
