The markets in financial instruments directive II (MiFID II)
MiFID II context and objectives
Adopted in response to the 2008 financial crisis, MiFID II (Markets in Financial Instruments Directive II) aims to strengthen the regulation of European financial markets. The directive, which came into force in January 2018, has several objectives:
- Increased transparency – Ensuring clear disclosure of financial instrument costs, risks, and characteristics.
- Investor protection – Strengthening advisory regulations and reducing conflicts of interest.
- Trading platform oversight – Extending supervisory coverage to include new financial technologies.
- Sustainable finance promotion – Integrating Environmental, Social, and Governance (ESG) criteria into investment strategies.
New in 2024: A Consolidated Tape (CT) is introduced to enhance transparency by centralizing and disseminating real-time market data.
Financial platforms facilitating financial instrument transactions must comply with heightened transparency and reporting obligations.
MiFID II distinguishes between:
- Regulated platforms – Operating under recognised regulated market rules with strict transparency and oversight requirements.
- Unregulated platforms – are subject to fewer regulations but are still bound by AML (Anti-Money Laundering) and data protection laws.
Licensing and compliance requirements
A platform must obtain authorization as an Investment Services Provider (ISP) from its national regulator, such as the Autorité des Marchés Financiers (AMF) in France, to provide investment services. This authorization ensures compliance with MiFID II's transparency, solvency, and governance standards.
By 2024, regulators will impose stricter authorization criteria, increasing transparency in market structures and fee disclosures.
Platforms must provide:
- Detailed cost and fee breakdowns for investment services.
- Clear risk disclosures for financial products.
- Robust conflict-of-interest management policies.
Under the 2024 revision, platform supervision will be intensified, focusing on pricing practices and access conditions for financial services. Platforms must also demonstrate compliance with ESMA's new reporting standards and implement market abuse prevention mechanisms.
Order and trade transparency requirements
MiFID II enforces pre-and post-trade transparency obligations on platforms. The 2024 amendments further standardise these requirements and reduce transaction publication delays.
- Pre-trade transparency – Disclosure of order prices and volumes before execution, ensuring fair market access.
- Post-trade transparency – Publication of trade details (price, volume, execution time) to bolster confidence among market participants.
In addition, regulatory reporting – Platforms must submit periodic transaction reports to regulators for market surveillance and fraud detection.
Investor protection and product governance
MiFID II imposes several mechanisms designed to strengthen investor protection and the governance of financial products. These measures ensure financial platforms offer services tailored to users' needs and profiles while minimizing investment risks.
The 2024 reforms reinforce these obligations by imposing new requirements on the design of financial products and their suitability for investor profiles.
- Product suitability checks – Platforms must ensure investment instruments align with investor profiles.
- Risk management enhancements – Facilitating access to risk assessment tools.
- Best execution obligations – Transactions must be executed on the most favourable terms (price, cost, speed, likelihood of execution).
- Stronger conflict-of-interest policies – Platforms must identify, document, and mitigate conflicts that could harm investors.
2024 Key reforms
The 2024 MiFID II revision introduces new transparency rules for investment services pricing. Platforms must justify all costs and fees to prevent distortions for retail investors.
Additionally, "complex" financial products will be more tightly regulated. Platforms must ensure that users fully understand these products before marketing them.
New ESG governance rules require platforms to demonstrate the sustainability criteria of their products to prevent greenwashing.
Regulatory authorities now hold enhanced powers to suspend or ban risky products deemed unsuitable for retail investors.
Markets in financial instruments regulation (MiFIR)
MiFID II vs. MiFIR: understanding the difference
While MiFID II and MiFIR are often mentioned together, they serve distinct functions:
MiFID II is a directive. It must be transposed into the national law of each Member State, which may entail specific adaptations depending on the jurisdiction.
MiFIR is a regulation. It applies directly in all European Union countries without the need for transposition. The rules are, therefore, uniform and immediately applicable in all Member States.
MiFIR's main objective is to ensure greater transparency in financial transactions while guaranteeing fair market access for all players, including financial platforms.
MiFIR imposes a strict framework for trading financial instruments. All transactions must occur on regulated platforms, such as regulated markets, multilateral trading facilities (MTFs) or organised trading facilities (OTFs). This requirement is intended to guarantee the integrity and security of trading while limiting over-the-counter (OTC) transactions, which are considered non-transparent. From now on, financial platforms may no longer execute transactions outside officially recognised platforms. This obligation encourages the centralization of transactions, which makes it possible to control monetary flows better, reduce the risk of market manipulation and ensure total transparency in trading activities.
Transparency of orders and transaction
MiFIR imposes pre-trade and post-trade transparency requirements on trading platforms. The new 2024 rules further standardise these obligations and reduce the time to publish transactions.
After each transaction, platforms must publish details of trades in real-time (price, volume, time of execution).
MiFIR guarantees fair access to market infrastructures for all participants. Platforms must ensure that access conditions are transparent and non-discriminatory, preventing practices from favouring certain players over others.
Charges for access to market data are also regulated. Platforms must:
Justify the costs involved in supplying the data.
Ensure that these costs are reasonable and proportionate.
Offer access at non-discriminatory prices, thus avoiding excluding certain players due to excessive costs.
Measures against market abuse and fraudulent practices
MiFIR provides for strengthened mechanisms for monitoring financial transactions. Platforms must put in place tools to detect anomalies, such as suspicious transactions or price manipulation.
The regulations also encourage cooperation between supervisory authorities in different Member States. This cooperation aims to:
Identify and prevent abusive practices, such as insider dealing and market manipulation.
Strengthen the exchange of information between national regulators to ensure harmonised European-level supervision.
Payment Service Providers (PSPs) play a central role in compliance with financial platforms. As intermediaries between users, platforms and financial institutions, they ensure that payments are managed within a secure framework that complies with the regulatory requirements in force
Their primary responsibilities include:
Payment management within a secure and regulated framework: PSPs ensure that each transaction complies with the standards in force, guaranteeing the security of exchanges and the protection of sensitive data.
Segregation of funds: to avoid mixing customer funds with those of the platform, PSPs must maintain separate payment accounts. This ensures users' funds remain accessible, even if the platform fails.
Combating money laundering and financing terrorism (AML/CFT): PSPs apply strict procedures to monitor transactions and report any suspicious activity to the relevant authorities.
Automated KYC (Know Your Customer) checks: identification and verification of user identity is automated to ensure compliance while simplifying the user experience. These processes verify user identity and prevent the risk of fraud.