Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

MiFID II conduct principles and markets integrity

MiFID II – the second Markets in Financial Instruments Directive – became law across the European Union on January 3, 2018.  It’s intended to overhaul the entire supervisory framework for financial sector organizations who are in the EU, have clients in the EU, or wish to have access to or establish equivalency for the markets there.  Its predecessor law, MiFID I, became law in 2004 and was judged to have not stood the test of time in the aftermath of the global financial crisis.  Therefore the seven year drafting process – from 2010 to 2007 – that culminates in MiFID II implementation this year is aimed to set a higher regulatory standard for investment banks, broker-dealers, and other institutional market participants and their employees.

Much of the attention about MiFID II implementation has focused on the burden to organizations from financial costs, human capital and efforts, and changes in commercial strategy that will be required for firms to work toward compliance with the new laws.  The laws are thousands of pages long and touch nearly every area of the financial services markets.  Some of the major areas of focus in MiFID II are investment research, transaction reporting, and brokerage compensation arrangements.  However, the far reach of banking and securities markets activities into the economy means that laws intended to govern this sector have a broad and dramatic scope as well.

Financial firms have already spent several years and lots of money and time on understanding how MiFID II requirements change or complicate their existing compliance programs and business activities.  However, in order to most constructively approach the challenges that the first year of working with MiFID II in place is sure to pose, it’s important to maintain a strong connection to the rationale for its necessity.  MiFID II is about promoting markets integrity in order to ensure investor protection and create a more transparent and fair playing field for all participants.

In this sense, the most important objective of MiFID II is to continue the rehabilitation of the financial sector following the 2008 global financial crisis and in the face of future challenges to the economy recovery and current market conditions.  Restoration of honesty and credibility in the financial system is still badly-needed in the post-financial crisis economic system, as well as progress toward resilience in the event of a future downturn.

To this end, MiFID II relies upon four straight-forward conduct principles for organizations and their covered employees to observe.  The main goal of these conduct principles within MiFID II is to mature and enhance the recovery from events that led to investor harm and diminished integrity in the markets.  These principles are:

  • Honesty
  • Fairness
  • Professionalism
  • Client interest supremacy

The overall objective of these conduct principles is to strictly and consistently apply common values and cultural principles within firms to increase the standard in the EU for investor protection and prevention of market abuse.  These fundamental principles can be applied not only to financial sector organizations but in a broader sense to a wide variety of organizations.  Values which call upon organizations to operationalize and take seriously their expectations for telling the truth, working fairly, being professional, and putting the client’s interests first are universal and worthy of being promoted alongside any commercial ambition.

For a great primer from Bloomberg on the fundamentals of MiFID II upon its implementation earlier this January, check out this article.


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