Markets in Financial Instruments Directive (MiFiD)

As of 1 November 2007, it replaces the Investment Services Directive

MiFiD retains the principal of the EU ‘passport’ introduced by the Investment Services Directive (ISD) but introduces the concept of ‘maximum harmonisation’ which places more emphasis on home state supervision.

The EU passport permits financial advisers from one EU state to conduct their business in another EU states providing the following rules have been applied:

• The financial advisory firm has been recognised by its home state financial services authority as being a fit and proper entity to conduct financial advisory services

• The home state regulatory authorities have informed the regulatory authorities of the other EU states in writing that it is the intention of this firm to conduct business in those states, and that they confirm that the passporting firm is compliant under MiFiD .

This now means that financial advisers from one EU country intending to passport to another EU country must do the following:

• When approaching a potential client, advisers must identify themselves, their company and state under which EU country’s regulatory authorities they are regulated.

• This must be stated on headed note paper and on all business cards and any electronic communication

• Advisers must hold professional indemnity to the value of €1,500,000 per claim against negligence

• They must be professionally qualified to offer financial advice

• They can only offer products which have received approval of the regulatory authorities of the country in which the meeting takes place

• They must give at the first meeting a document called Key Facts which states clearly products available, services provided, and payment by commission or fees, definitions of risk and data protection. This must be agreed and then signed by the client before any financial discussion can take place

• The Adviser must then complete a financial questionnaire with the client. Based on this information, can make recommendations as to the best product suitable for the clients needs. This record must be retained on file for up to five years after the business relationship has ceased

Failure to meet any of the above requirements will result in the Adviser being liable to a €20,000 fine per day for malpractice

This legislation has been put in place to raise the professional standards of all financial advisers operating in the EU.

We are delighted that legislation has now been put in place to consolidate what we have already been operating as best practice for a number of years.

Martyn O’Reilly

Saltire International Management Consultants