MiFID directive comes into force in November - INVESTOR PROTECTION IMPROVES

MiFID is introduced in an effort to integrate the European securities market by making it easier to provide investment services within the EU and by removing barriers to trading.

What does the change mean?

If the customer works as an investor, he or she is not required to do anything to continue to use the present services.
But if the customer uses investment services such as securities dealing, asset management or investment advisory services, MiFID’s new provisions do play a role.  The new provisions affect all financial instruments such as equities, bonds, and units in mutual funds.  Investments in assets other than financial instruments, instead, like savings or life insurance policies, bank deposits, or housing as an investment, are not covered by MiFID.

Providers of investment advisory service will need an authorisation from now on.  Personal investment advice may in the future be given by entities duly authorised to provide such advice, for example banks, investment firms, fund management companies, or agents working under the responsibility of any of these entities.  Authorisations for this service are issued to Finnish companies by Financial Supervision, a body that supervises the operations of such companies.

Most investor customers are non-professionals

Customers using investment services are grouped, just as they are now, into non-professional and professional investors.  Some of the professionals may qualify as what are called eligible counterparties, such as authorised pension providers and fund management companies.  Customers are classified according to detailed provisions contained in the Finnish Securities Markets Act.

Customer classification affects the extent of investor protection in the first place.  Non-professional clients continue to be covered by the protection ensured by the Investors’ Compensation Fund.  No changes will be introduced in the compensation criteria applied by the Investors’ Compensation Fund.

For investment firms, customer classification means a major impact on obligations rather than an opinion on customers’ investment skills.  All non-professionals enjoy the widest investor protection available.  MiFID sets out from the assumption that all private individual investors are non-professionals.

Investor protection improves

In the future customers will get more information on their service provider and on the services that he or she is interested in.  Such information may cover areas such as the risks involved in financial instruments, fees charged on the transactions, execution of orders and conflicts of interest that may arise between the customer and the service provider.

For the purpose of transmitting orders on its own initiative for a customer classified as non-professional, the service provider asks the customer for information on his or her investment experience and knowledge of the financial instrument or service concerned to be able to assess whether the customer has enough information on the risks involved in the investment.  On the basis of information given by the customer, the service provider evaluates whether the financial instrument or service is appropriate for the customer.

Why do they want to know about customer’s financial standing?

To be able to recommend financial instruments or services suitable for the customer, the service provider asks for information on the customer’s investment experience and knowledge, financial position and investment objectives.  Disclosure of such information is vital for the customer, because it helps the investment firm to estimate what services and products are suitable for the customer.  If the customer does not give the required information, the service provider may not be able to recommend any service.

The service provider assesses each investor individually on the basis of the investor’s investment experience.  The criteria applied to the assessment are the same throughout the European Union.

In spite of the assessment of appropriateness and suitability, the customer bears the final risk involved in the performance of his or her investments.

Further information available from

Erkki Kontkanen, Head of Financial Industry Legislation, Federation of Finnish Financial Services, on +358 20 793 4240
Pia Nevalampi, Legal Adviser, Federation of Finnish Financial Services, on +358 020 793 4245
Vesa Sainio, Deputy Managing Director, Finnish Association of Securities Dealers, +358 9 668 9170

Read more about MiFID on the websites of the Federation of Finnish Financial Services and the Finnish Association of Securities Dealers at www.fkl.fi and www.apvy.fi