February 25, 2021

MiFID II/MiFIR was implemented three years ago and as expected, we are seeing a number of post-implementation reviews to identify any aspects that have not worked as expected and any unintended consequences.

Explore our insights and what this might mean for your firm.


The Markets in Financial Instruments Directive II (MiFID II) was the largest overhaul of financial services regulation of the decade. The directive impacts the entire investments lifecycle as it enhances and expands regulation of financial institutions within the European Economic Area (EEA) as well as those providing services cross-border.

MiFID II applies to those financial services businesses undertaking MiFID business anywhere in the EU as well as those providing services cross-border. This includes investment firms, trading venues, data reporting service providers and third country firms providing investment services or performing investment activities into the EU (either on a services basis or via a branch). MiFID II impacts all areas of Pershing and provides clients and particularly wealth managers with increased obligations.

The overarching aim of MiFID II/MiFIR was to “level the playing field in financial markets” by rectifying their inefficiencies, improving their functioning, and ensuring greater transparency and resilience.

MiFID II took effect from 3 January 2018.

MiFID II/MiFIR Reviews

ESMA is now undertaking post-implementation reviews of the original requirements. This will not be another ‘big bang’ implementation but instead we are seeing a staggered approach to focus on making changes to the pieces that have not worked as expected (costs & charges, product governance and research unbundling obligations) and also to fine tune third-country provisions (notably as the UK becomes a third country) and the transparency measures (the double volume cap, the SI regime, algorithmic trading, the trading obligation for derivatives, SME growth markets and the functioning of organised trading facilities (OTFs)).

In addition to this, in October 2020 the European Commission (EC) was asked to present a proposal for a wide review of both MiFID II/MiFIR by 31 July 2021. Areas in scope include market structure, data, trading and post trading, research rules, inducements to advisors, client categorisation and Brexit.

Covid-19 ‘Quick Fix’

In July 2020, the EC issued a legislative proposal to amend specific requirements of MiFIR/MiFID II in light of the current Covid-19 pandemic, aiming to streamline regulatory requirements whilst allowing for more flexibility for wholesale clients. These proposals include the phasing-out of paper-based communication, exemptions from costs and charges disclosure for eligible counterparties and professional clients, and the suspension of best execution reports for venues (RTS 27), amongst others.

The EC was looking to introduce these changes as ‘quick fixes’ to mitigate the effects of Covid-19 and originally sought to drive for early application of the amendment but the changes are now expected to come into force early 2022.

Linda Gibson, Director of Regulatory Change (February 2021)

The proposed amendments in the Covid-19 ‘quick fix’ are meant to recalibrate specific requirements. To ensure that retail clients receive a high-level of investor protection, the amendments adjust between retail clients, professional clients and eligible counterparties. While some of the changes cut across investor categories (e.g. the phase-out of paper based information), the majority of the proposed amendments focus on providing alleviations for professional clients and eligible counterparties. This point was made by the UK industry associations when responding to the EC’s consultation earlier this year calling for a more proportionate treatment of wholesale clients and information adapted to their needs.

To date, the UK government has not said whether it will make corresponding amendments to the onshored UK MiFID regime.

Firms should also note that in January 2021, ESMA issued a statement reminding firms of the MiFID II rules on reverse solicitation, and the provision of investments services to retail or professional clients by firms not established or situated in the European Union (EU).

ESMA called out that with the end of the Brexit transition period, some ‘questionable practices’ have emerged as some firms appear to be trying to circumvent MiFID II requirements by including general clauses in their Terms of Business, whereby clients state that any transaction is executed on the exclusive initiative of the client.

ESMA’s statement is not ‘new news’ - reverse solicitation must always be at the client’s own exclusive initiative. It is, however, a reminder and a warning shot from ESMA to UK firms on certain behaviours that it sees as not being in compliance with the law, and it’s also putting the local EEA regulators on point to monitor and take action. Whilst reverse solicitation remains an option, we recommend that firm proceed with caution and take legal advice where necessary.

Pershing’s Regulatory Change Team continue to monitor developments in this area.