Background

On 20 October 2011, the EU Commission (the “Commission”) published its long awaited legislative proposals1 for the recasting of the Markets and Financial Instruments Directive (“MiFID”).2 The Commission had previously published a consultation paper in relation to its proposals on 8 December 2010.3 Although many respondents raised a number of fundamental concerns on various aspects of the Commission’s proposals during the consultation, most of the major changes proposed in the consultation paper have been retained in a similar form in the draft legislation.

MiFID came into force less than four years ago in November 2007 and made significant changes to the regulatory framework of financial services within the EU, introducing a harmonised regime for the regulation of investment services. Although the EU Commission had indicated it would undertake an early review of MiFID and its effect on the financial markets, the onset of the financial crisis has resulted in a much more far-reaching overhaul of the Directive than was originally contemplated. As highlighted below, the new proposals will significantly expand the scope of MiFID in a number of important respects and will facilitate a more interventionist approach on the part of national regulators and the new European Securities and Markets Authority (“ESMA”). The proposals are intended to tie in with other recent international developments in the regulation of financial markets including the Dodd-Frank legislation in the U.S., the EU Commission’s proposals to recast the Market Abuse Directive (“MAD”), which were also published on 20 October 2011, the draft European Markets Infrastructure Regulation (“EMIR”), and the EU Commission’s proposals in relation to packaged retail investment products (“PRIPs”).