Esma publishes retail investor guide to Mifid II

The European Securities and Markets Authority (Esma) has published a short guide for retail investors explaining the impact of the changes to be made in investor protection under the Markets in Financial Instruments Directive (Mifid II) reforms.

The guide highlights some of the more important changes taking place to Mifid which may be most relevant to retail investors and reminds investors that the new guidelines will regulate the provision of investment services in financial instruments such as shares, bonds, derivatives and various structured products by banks and investment firms, and the operation of traditional stock exchanges and alternative trading venues.

“One of its core objectives is to ensure a high degree of harmonised protection for investors in financial instruments,” it said. “Changes are being made to a key piece of European law whose purpose is to protect you when you buy or invest in financial products.

Structured deposits
According to Esma, some of the areas updated and strengthened by Mifid II include the addition of new products under the scope of the new rules, including structured deposits.

“Mifid II will increase the protections provided to you when firms sell financial instruments to you,” it said. “It will do this by limiting the types of non-complex instruments that can be sold to you without the firm needing to ask about, or assess, your knowledge and experience.”

Esma said that structured deposits – a category of financial products which was previously unregulated at EU level – satisfy similar investor needs and raise comparable investor protection challenges to the types of financial instrument already within scope of Mifid.

“In the future, the sale of structured deposits will have to comply with several Mifid requirements – in particular, with the conduct of business and conflicts of interest rules which govern how financial firms should behave towards you, including when they are designing, advising or distributing Mifid instruments,” said Esma.

Mifid II, added Esma, will also make clear that complex products (including complex structured deposits) cannot be sold to investors on an execution-only basis and will broaden the category of complex products.

Greater price transparency
Esma also warned investors that the requirements to ensure prices are clear before and after trading on an exchange or other type of trading platform will now apply to a wider set of financial instruments than just shares.

“Firms will have to be clear about prices offered to buy or sell bonds, depositary receipts, exchange-traded funds, structured finance products and derivatives and must also be clear at what price these products were actually bought and sold,” it said.

These new requirements, said Esma, will allow retail investors to see more clearly the actual prices of various financial instruments, enabling them to compare prices and find the most competitive offer available.

Other provisions
The European regulator also reminds investors of other provisions and requirement under the new rules, including changes around inducements to address conflicts of interest between financial firms and investors; independent advice; safeguarding client’s assets; and product governance.

In addition, Esma highlights in its guide the new powers for member regulators to ban certain products permanently if they consider these products are not in the interests of investors and provided that a number of legal conditions are fulfilled.

“Regulators will also be able to limit the marketing of these products to certain investor types only,” it said. “Regulators will monitor the kinds of products firms market to certain investors and, where appropriate, will also ban (but on a temporary basis) the marketing and distribution of products that give us cause for concern.”

Click here to read the full Mifid II guide for retail investors.

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Esma publishes retail investor guide to Mifid II