European Regulation


MiFID - Passporting within the EEA

  • MiFID replaced ISD November 2007
  • Investment Services Directive (ISD) introduced passporting
  • Passporting = firm authorised in one member state to provide investment services, this enables the firm to provdie investment servcies in other member states without requiring further authorisation
  • MiFID aims to provide investor protction rules across EEA (suitability/appropriateness/disclosure/inducements) and for firms to act in best interest of clients
  • MiFID supports the EU's aim to extend the scope of passportable services and remove hurdles to cross-border business opportunities (host/home state rules
  • MiFID extended the scope of passportable activities to include; invetsment advice, some underwriting activities, operating an MTF, investment activities relating to commodity derivs, credit dervis & CFDs), investment research.
1 of 12

Core MiFID Activities

  • Receipt/transmission of orders
  • Execution of orders on behalf of clients
  • Dealing on own account
  • Portfolio management
  • Investment advice
  • Underwriting of financial instruments
  • Operation of MTFs & OTFs
  • Placing financial instruments on a firm commitment basis & without a firm commitment basis
2 of 12

Ancillary MiFID Activities

Must already have the relevant activity within their Part 4A permission & only passportable in conjunction with one/more of the core actvities:

  • Safekeeping & administartion for clients (+ custodianship, management of cash & collateral)
  • Granting creit/loan to investor, when the firm granting is onvolved in the transaction
  • Advice to undertakings on capital structure/industrial strategy
  • Advice to undertakings on mergers/purchase of undertakings
  • Investment research/financial analysis
  • FX services (connected to core activites)
3 of 12

MiFID Instruments - MiFID II (Jan 18) expanded thi

  • Transferrable securities - shares, bonds, etc.
  • Money market instruments
  • Units in CIS - UCITs
  • Financial CFDs
  • Derivatives on securities/currencies/interest rates/yields
  • Commodity derivatives (cash/physical settlement on a regulated market/MTF/OTF)
  • Exotic derivatives (emissions/weather)

Exclusions - bank accounts/FX/physically settled OTC derivatives used for commercial purposes/commodity spot trading/commodity producers/retail activities)

4 of 12

MiFID - Home State vs. Home State Regulation

Home State (pretty much everything):

  • Authorisation
  • Prudential supervision
  • Fitness & propreity
  • Conduct of Business in home state
  • Conduct of Business for cross-border servcies (not from a branch)
  • Client Assets

Host State :

  • Conduct of Business in host state when performed from a BRANCH in the host state
  • Any othe rules required by the host state (e.g. UK, SMCR regime)
5 of 12

UK Firms Classified as MiFID Firms

  • Investment banks
  • Portfolio managers
  • stockbrokers/broker-dealers
  • Futures/options firms
  • Firms operating an MTF/OTF
  • Venture capital firms (meet certain criteria)
  • Energy, oil & commodity market participants (meet certain criteria)
  • Corporate finance firms (meet certain criteria)
  • Advisers (some)
  • Credit institutions which carry out MiFID business
  • Exchanges/UCITS

Exemptions - Artclie 3 Exemption (financial advisory firms that only provide investment advice,do not hold client funs/securities, only transmit orderrs to MiFID firms * to passport, must apply to remove exemption on Part 4A permission)& Article 2 Incidental Exemption (invetsment services provided is incidental to the professional practice of their firm) 

6 of 12

New MiFID II Framework Covers...

  • Scope = expansion of who is subject to authorisation & additional instuments bought into scope of MiFID.
  • Electronic Trading = Organised Trading Facility (OTF) - requirements imposed on operators of an OTF & a separate permission.
  • Transparency / Transaction Reportng = transparency requirements extended to more instruments (bonds, derviatives, equities), trade reports published real time through an approved publiation arrangement (APA) firm (1 min within execution of equity, 15 mins for non-equity), transaction reports to gather additional info.
  • Third Country Firms = decision made by EC before firms from jurisdiction can request to provider services (3rd country wanting to acces retail market must set up a branch.
  • Investor Protection = Inducement rules (certain firms inducements banned), advice must meet certain criteria (independent/restricted), UCITS not a non-coplex inst. now assess apropateness for client.
  • Product Intervention = regulator powers to ban products (w/ ESMA), position limits for commodity derivatives.
7 of 12


If a CIS is set up in accordance with UCITS rules, single authorisation from home state regulator allows cross-border selling.

Original directive was very limiting:

  • scheme could only be soley invested in transferrable securities
  • no more than 10% of the fund could be invested in share/bonds of a single issuer
  • no more than 5% of assets invested in another CIS
  • only able to money in deposits as ancillary liquid assets ()not part of strategy)
  • only able to invest in derivatives for efficient portfolio management or hedging
8 of 12


2 new directives introduced:

  • Management Directive = deals with the management companies operating the CIS (delegation/administration/ capitalisation)
  • Product Directive = increased investment powers (financial derivatives/other CISs/money market instruments/replication of indexs)

UCITS Directicve IV (July 2011) implemented the following changes =

  • Passporting for management comapnies (no longer have to be in same state as UCIT fund was established)
  • Key Investor Information Documents (KIIDs)
  • Improved cross-border marketing of authorised funds
  • Mergers
  • Master-feeder structures (one fund invest majority of assets into another)
  • Improved supervisory co-operation
  • Cannot invest in commodity derivatives/property
9 of 12

The Prospectus Directive

  • July 2005
  • Sets out common standards in the terms of information which must be provided about the issuer and the securities being issued/admitted for listing.
  • Once a prospectus has been approved by a home state listing authority, ti must be accepted for the prupose of listing/public offers throughout the EU.
  • Easier and cheaper for companies to raise capital in Europe
10 of 12

Alternative Investment Fund Managers' Directive (A

Aim to regulate (non-UCI fund) fund managers, e.g. Hedgefund managers

AIMFD covers management, administration and marketing of alternative investment funds.

Will allow cross border(EEA) selling of funds by either:

  • being authorised by a regulator in the EU
  • outside the EU if they meet certain fiscal & regulatory requirements
11 of 12


EMIR = regulation on derivatives (primarily OTC), CCPs and trade repositories - aims to improve transparency and reduce risks associated with derivatives market.

  • Reporting of all derivatives (OTC & ETD) to a trade repsoitory.
  • September 2013 = all EEA counterparties are required to undertake a reconciliation of their outstanding derivative contracts on a daily basis. Firms msut also agree the process for dispute resolution where they disagree trade details.
  • February 2014 = all EEA entities have been required to start reporting trade details to a repository. Both counterparties must report, the trade repository then reports this to ESMA.
  • Febrouary 2017 = inital margin requirements for non-centrally cleared trades
  • March 2017 = variation margin requirement
12 of 12


No comments have yet been made

Similar Other resources:

See all Other resources »See all Financial Regulation resources »