What Is MiFID II and How Does MiFID II Impact Forex Regulation?
Although the name appears intimidating, MiFID II can easily be understood as a regulatory framework for financial services, a topic we explore further in today’s post.
The investment industry as a whole is riddled with acronyms that are constantly changing and evolving as time goes on. An example is MiFID II, a term those in the foreign exchange and investment community have most likely heard before. Financial verbiage like MiFID II are sometimes brought up in discussions without any context or background, which can often be confusing for those new to the forex industry.
In today’s post, we’ll discuss MiFID II in more detail so that investors and brokers alike have a better understanding of the term and how it impacts regulation in the forex industry.
What Is MiFID II?
If you are wondering what MiFID II stands for, it’s an abbreviation for The Markets in Financial Instruments Directive. MiFID II was drafted in 2008 and can be interpreted as a legislative response to the many issues that cropped up in the wake of the financial crisis that took place that year. As the Roman numeral “II” implies, this legislative framework is a follow up to the original MiFID law passed in 2007. With this background in place, a simple definition of MiFID II is a law passed by the European Union that sets an enhanced framework for financial services regulation across all EU member states.
How Does MiFID II Impact Forex Regulation?
Although MiFID II has impacted the entire investment community, we will just focus on how these changes apply to the forex & CFD sector, which happens to be our area of specialization at Atomiq Consulting. In short, MiFID II set a new bar for FX regulation throughout the European Union by introducing a variety of measures aimed to both offer more transparency and as well as protect investors. Despite some initial complaints, the changes provided by MiFID II were generally accepted by European-based forex brokers and have become the de-facto regulatory standard across the EU.
Examples of the Regulatory Impact of MiFID II as it Relates to Forex Brokerages
Elimination of deposit bonuses
Classification of investors into 2 profiles: professional and retail
More transparency as it pertains to algorithmic asset management and the promotion of such services
A higher standard for regulatory reporting which includes more granular details concerning the full scope of the broker’s activities
Stronger standards related to communication with clients and prospects: archival of all electronic client communication, recording of calls, and enhanced KYC procedures
Higher standards related to the marketing of financial products
Has MiFID II Improved the Investor Experience or Choked Growth in Europe?
The biggest challenge with regulatory changes like MiFID is that despite the new classification attempt, not all investors are alike. MiFID II no doubt protects those new to the forex market, especially investors who may not be aware of the full set of risks. More seasoned traders, however, grew comfortable with looser regulation and may not enjoy these changes as they have already understood and acceped the risks involved in this type of speculation.
Setting regulatory standards is truly a balancing act between client protection and outright restriction: should regulatory standards be too stringent, then investors will seek unregulated alternatives; when regulations are too lax, certain investors inevitably end up being taken advantage of. From a general standpoint, it appears that most forex brokers have come to accept the changes enacting by MiFID II and have adjusted their businesses accordingly, which has added further credibility to industry that no doubt has had its share of bad apples.
Atomiq Consulting – Your Partner for Forex Broker Licensing and Legal Services
If your broker is interested in learning more about forex regulation in Europe or obtaining a forex broker license in regions like Cyprus or Bulgaria, we are the ideal partner to assist you further. In addition, our team of specialists can also offer guidance as it relates to reporting and other regulatory requirements in the EU.
With decades of industry experience under our belts, Atomiq Consulting is the ideal partner to assist your brokerage with all legal requirements and forex broker licensing needs. Don’t hesitate to contact us today to explore our services further!
