Investment firms are subject to a comprehensive framework of code of conduct requirements, which are based on the Markets in Financial Instruments Directive II (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). While the directive sets out the goals that EU member states should aim to achieve, the regulation imposes transaction reporting obligations that all countries must comply with.
MiFID II applies to the provision of investment services or investment activities to clients in relation to financial instruments such as securities, units in collective investment undertakings, options, futures, swaps and emission allowances. The Dutch MiFID II rules apply to Dutch investment firms, regulated markets, multilateral trading facilities (MTFs), organised trading facilities (OTFs), and non-Dutch firms providing investment services or activities in the Netherlands. MiFID II also contains requirements for data reporting service providers (APAs/ARMs).
The following services and activities are in scope:
- Investment advice
- Order reception and transmission (RTO)
- Execution of orders
- Portfolio management
- Underwriting and placement activities
- Trading for own account
- Providing a trading platform (MTF/OTF or regulated market)
Licence to operate
Under MIFID II, EU and non-EU firms dealing on own account in commodity derivatives, emission allowances or derivatives thereof must in principle have a licence to operate an investment firm. Licensed EU firms can provide investment services in the Netherlands on the basis of a European passport and do not require a separate licence. A ‘light licence’ regime applies to regulated investment firms from Australia, the US and Switzerland. It is important to note that Dutch ongoing conduct rules still apply, the scope of which depends on the type and nature of the services.
Requirements
The requirements arising from MiFID II depend on the type of services provided by the investment firm and the type of client (retail/professional/ECP). They include:
- Know your customer (KYC) and information requirements
- Other investor protection requirements such as inducement rules, best execution and asset segregation
- Product governance
- Market transparency, such as publication of pre- and post-trade data
- Rules on mandatory trading requirements for equities and derivatives and reporting obligations
The MiFID II rules have been implemented in the Dutch Financial Supervision Act, the Prudential Rules Decree and the Market Conduct Supervision Decree. As MiFIR is a regulation, it applies directly to EU member states. Level 2 regulations, such as delegated acts and regulatory and implementing standards, contain more detailed requirements.
Important MiFID II guidance is also set out in European guidelines, such as:
- ESMA Guidelines on MiFID II product governance requirements
- ESMA Guidelines on the MiFID/MiFIR market data obligations
- ESMA Guidelines on certain aspects of the MiFID II suitability requirements
- ESMA Guidelines on certain aspects of the MiFID II remuneration requirements
ESMA regularly publishes and updates Q&A's on key issues such as MiFID II and MiFIR transparency, investor protection and intermediaries. The AFM attaches great importance to these guidelines and Q&A's, and also issues guidelines and best practices itself.
IFR/IFD – prudential rules for investment firms
Investment firms also fall within the scope of the Investment Firm Regulation (IFR) and the Investment Firm Directive (IFD). The harmonised IFR/IFD prudential framework includes capital requirements.
What we can do for you
We have extensive expertise in MiFID II requirements. Some of the things we are helping our clients with include:
- Determining whether a MiFID licence is required or an exception applies
- Applying for a license
- Communications with the regulator about MiFID activities, investigations and potential sanctions
- Drafting MiFID policies
- Application of existing MiFID rules and introduction of new rules, requirements and guidelines
- Advice on derivatives trading and documentation
