Cents For Sense Blog | Post-MiFID II, What is the State of Play for Online Brokers? | Talkmarkets

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Post-MiFID II, What is the State of Play for Online Brokers?

Date: Saturday, March 28, 2020 11:35 PM EDT

Since being introduced by the European Securities and Market Authority (ESMA) back in 2018, the MiFID II directive, which is short for the Markets in Financial Instruments Directive, has completely transformed the practice of trading financial instruments. It has widely been described as the most far-reaching piece of financial regulation introduced in Europe since the crash of 2008, one that has had a substantial impact on trading practice.

As with many other landmark pieces of EU legislation, MiFID II triggered what has been called the 'Brussels Effect', in which a piece of EU legislation aimed only at European sellers and consumers ends up being de facto adopted by much of the rest of the world.

This is because, although legislation like MiFID II only technically applies to entities with a physical presence in Europe, any entity wishing to compete for European clients has had to adapt, as those clients will expect the same levels of compliance and transparency as they are accustomed to from their European investment firms.

Of course, it's not just large firms that have had to comply with MiFID II, smaller online traders and brokers have had to get on board with the requirements if they wish to operate legally in Europe. A full two years on since MiFID II was rolled out, let's have a closer look at how the competitive landscape for digital brokers has changed.

Source: Unsplash

Comply or Die 

First off, it's worth noting that, as MiFID II has been allowed to mature over the past two years, the enforcement abilities and noncompliance penalties have grown stronger and larger. While the regulations are designed to ensure that investors are protected and that traders and brokers operate in the most transparent and fair way possible, they were also intended to bring the vast ocean of unregulated brokers into the formal trading regime.

To achieve this, penalties for noncompliance are harsh. Many of the headline-grabbing penalties have involved major firms such as Merrill Lynch, Deutsche Bank, RBS, and City Index Limited, who have received fines of between £2 million to £45 million as a result of breaching MiFID II rules on transparency and accurately reporting transaction. However, firms and brokers of all shapes and sizes have been affected.

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