MiFID. The harmonization of the financial markets

Transcription

1 The harmonization of the financial markets

2 MiFID or Markets in Financial Instrments Directive, aims as its core goal at the harmonization of the financial markets by introdcing a common reglatory regime for the 27 member states of the Eropean Union pls Iceland, Norway and Liechtenstein. It also aims at protecting the investors. It consists on reglations and two directives, implemented on November 1, 2007 across the EU and srpassed the Spanish legal order with Law 47/2007 dated December 19, which modifies Law 24/1988, dated Jly on Secrities Markets and with Royal Decree 217/2008 dated Febrary 15 on investment services companies legal regime. This brochre contains a concise explanation on the novelties the new rles have introdced into yor relationship with RBC Investor & Treasry Services (RBC I&TS) for the investment activity or services provided. Contents What does MiFID imply 3 Field of application 3 Client classification 4 Convenience and sitability evalation 5 Organization 5 Best exection 5 Information to clients 6

3 3 1 What does MiFID imply MiFID has as its priority goal the improvement of the investors protection by the application of three general principles, which are to rle the investment companies condct: Dty of acting in a honest, fair and professional way in the clients best interest. Dty of providing impartial, clear and non-deceitfl information to their clients. Dty of providing and offering prodcts and services bearing in mind their clients personal circmstances. MiFID provides a wide and harmonized reglation framework covering a wider range of prodcts and services, recognizing new trading systems, ptting an end to the concentration principle and allowing the investment companies to offer their services in the Eropean market. It increases the transparency and control in the markets with the imposition to the investment companies of a set of minimm organisational and internal control reqirements. 2 Field of application MiFID rles apply to a wide range of financial instrments, being the following the main categories: Shares. Corporate bonds. Unit ownership in ndertakings for collective investment. Instrments traded in the money market sch as government bonds, Treasry bills, deposit certificates and commercial paper. Forward interest rate agreements. Derivatives prodcts (options, ftres, swaps, etc) on shares, interest rates,interest rate agreements, forex, shares, indexes, inflation, credit risk transfer, primary goods, etc. MiFID rles apply to the following services/activities: Reception, transmission and exection of financial instrment orders. Portfolio management. Financial instrment administration and cstody. Advising on investment. Dealing on own accont. Underwriting of financial instrments and/or placing of financial instrments on a firm commitment basis. Placing of financial instrments withot a firm commitment basis.

4 4 3 Client classification MiFID ensres protection to clients of the investment services companies bt in a modlate manner so that the clients are classified in three different categories receiving each grop a different level of protection: elegible conterparties, professional clients, retail clients. This classification is based on parameters sch as the reglated entity statte, their investment backgrond, knowledge and their financial capability. Eligible conterparties These are the recipients of the lowest protection level and the ones RBC I&TS may provide with services and investment activities, RBC I&TS not being bond to follow the best exection rles as per 2004/39/ CE directive. Investment companies, credit companies and insrance companies. Collective investment vehicles and management companies. Pension fnds and management companies. Athorised or reglated financial companies. Administrations, central bancas and international organizations. Professional clients Experienced clients the financial markets with the reqired knowledge to take their own investment decisions and to vale adeqately and sfficiently the risks involved. Reglated instittions of the financial markets. Greater entities flfilling at least two of the following conditions: Balance > 20 million Bsiness > 40 million Own fnds > 2 million Governments and international organizations. Instittional investors, whose main activity is to invest in financial instrments. Primary good traders trading for themselves. Retail clients: non-professional clients These clients are entitled to reqest their investment company to be re-categorized as professional clients. However, they may only renonce to the protection of condct rles given by the retail client condition if they abide by the following procedre: They mst reqest it in written. They mst declare to be aware of the conseqences of their renonce to the protections. They mst ndergo an evalation on their competence, experience and knowledge so as to determine whether the client can take their own based decisions on investment and whether they comprehend the risks involved.

5 5 4 Convenience and sitability evalation Entities mst collect the reqired information to check the sitability of the provided investment service and keep this information pdated with the prpose of ensring the sitability of an offered service or prodct sbject to the conditions of each client with respect to their experience, knowledge, financial capability and investment objectives. When the advising or discretionary portfolio management services are provided, the test mst be complete. In the case of exection and prodct orders messaging the evalation mst bear in mind the client s experience and knowledge and mst warn abot the risks in certain cases even thogh the sale of the prodct does not inclde advising. Based on the information provided by the client, when the prodct is not considered sitable for the client or when the clients refses to provide the information, the entity mst expressly warn of the lack of adeqacy of the prodct of the impossibility to carry ot the evalation. 5 Organization Within the client protection framework, MiFID imposes the investment companies certain organization and internal management rles sch as: The assmption of responsibilities by the pper managament. The establishment of control fnctions: risk, compliance, adit. Policies and procedres for the identification and management of conflicts of interest that may damage the client or potential client. Operational risk reqirements and management derived from the otsorcing of the essential operational fnctions. Safegard of the ownership rights of the client assets and fnds. Adoption of contingency and recovery plans, safegard of IT systems. Registration of transactions, which facilitate the spervisory tasks. 6 Best exection One of the fndamental pillars of the new reglation is the best exection principle, which is classified within the rles of condct. It states that the investement company mst adopt all the reasonable measres to obtain the best reslt for the client at the exection of his/her orders, bearing in mind factors sch as price, costs, the exection and settlement probabilities, volme, natre or any other relevant consideration. The importance of eahc of these factors mst be determined within the company s best execttion policy, which mst be commnicated to its clients. Also, this policy mst describe the procedres and trading systems that allows the best exection to take place, bearing in mind the client s characteristics, the financial instrment s characteristics and those of the trading places where the instrctions can be placed.

6 6 This dty applies to the fll process starting at the moment where the instrction is generated and ending at its exection. Therefore, it applies to all intermediaries involved in the exection chain, from the portfolio managers to the entities effectively execting the trade in the market, inclding the entities receiving the instrction and forwarding it for its exection. 7 Information to clients MiFID imposes the investment services entities the dty to provide certain information to their clients. This dty improves the qality of information given to clients at all relationship stages: pre-contractal, contractal and post-contractal. The higher the protection MiFID provides in accordance with the client classification, the greater the need for information and explanation on the possible risks of the financial instrments. This protection is increased for potential clients and so the information frnished to clients is adjsted before the service is provided. In short: Implementation of differences between retail and professional clients within RBC Investor Services España, S.A.U. Information to client Service offer advising or portfolio management Service offer Best exection Organizational reqirements Retail investors Professional investors RBC I&TS does not distigish between professional and nonprofessional clients RBC I&TS does not provide advising services related to investment or portfolio management The service offer is evalated in relation to the client s knowledge and experience. If reqired, the necessary warnings will be sent to the client There are no restrictions RBC I&TS does not make distinction between professional and no professional clients RBC I&TS does not make distinction between professional and no professional clients This brochre s single prpose is to provide or clients with brief details on the rles as a reslt of the MiFID directive dring their relationship with RBC I&TS. Therefore, it is not thorogh, does not contain all the MiFID directive details, its development rles, gides or its incorporation into Spanish Law. It is possible that the definitions or expressions sed in this brochre may not follow the legal form.

7 If yo wish to receive frther information, yo may contact or Compliance Department at or via at RBC Investor Services España, S.A.U. Fernando el Santo, 20 T contactar@rbc.com rbcits.com RBC Investor Services Activos, S.A.U. José Ortega y Gasset, 26 T activos.es@rbc.com rbcits.com