It's rumoured there are over a million paragraphs of MiFID II rules and you can forget thinking you might find them neatly filed in one place: different parts are written by different authorities, published on different websites. Plus MiFID II is EU law and whilst EU rule-making may be second nature to those involved in the process, it’s as opaque as the Enigma code to most people. But it's not a problem: to make this as painless as possible for you, here are the links to the rules in one place plus the bare-bone-notes on what you need to know to understand where they fit into EU rule-making jigsaw.
Level 1 sets the framework ‘principles’ which reflect the political choices made by the European Parliament, the European Council and the European Commission. For example, MiFID II Level 1 legislation says that liquid instruments must be subject to pre-trade transparency (want to know more about pre-trade transparency? – read my article Understand what pre and post trade transparency means in less than 8 minutes) but doesn’t specify what liquid means or what information has to be made pre-trade transparent in any detail – that’s left to the level 2 rules.
MiFID II is made up of two legal instruments:
A Directive gives EU Member countries an “order” to achieve certain outcomes. The EU uses Directives if it wants to set a minimum standard for laws but allow some room for some interpretation. This means each EU country has to “transpose” – put – the directive into its own national law for it to take effect. Therefore, there may be small divergences in how the law is set out in each country but they should achieve the same overall result.
A Regulation is a form of EU law that is binding in each EU country without any further action needed, meaning EU Member countries do not need to transpose – put – the Regulation into national law. The EU uses this legal instrument when it wants absolute harmonisation. For example, under MiFID II the rules on transparency and liquidity are contained in MiFIR to avoid different thresholds and interpretations for similar or the same instruments. However, most of the investor protection rules are in the Directive.
Languages: the Directive and Regulation are available in all the EU languages.
Level 2 refers to the more detailed rules that flesh out the Level 1 framework. Basically, there are two ways in which the MiFID II/MiFIR level 2 rules are made.
The simplest way to find the MiFID II/MiFIR RTS and ITS is to refer to the European Commission’s table published here, last updated 8th Jan 2018, which lists twelve ITS and 33 RTS. Note that ITS and RTS are binding across the EU, meaning EU Member countries do not need to transpose them into national law or the local regulator’s rulebooks (so, for example, you will not find the RTS and ITS content in the UK’s FCA Handbook).
The content of RTS is “meatier’ than that of ITS. RTS are where the high level rules in level 1 are fleshed out: they are “technical” but should not contain any “strategic decisions or policy choices”. ITS, as their name implies, aim to ensure a consistent practical implementation of rules across the EU.
For example, there is both an RTS and an ITS under MiFID II in respect of the authorisation process for investment firms.
Languages: the RTS, ITS and delegated acts are available in all the EU languages.
Worth noting: final versions of the MiFID II/MiFIR RTS, ITS and delegated acts are published on the European Commission’s website – not on ESMA’s website.
Perhaps unsurprisingly, given the scope and complexity of MiFID II, unanswered questions still pop up regularly despite the voluminous level 1 and level 2 rules. How does the EU fill these gaps? There are two main Level 3 “tools” which ESMA uses for MiFID II/MiFIR: Guidelines and “Questions and Answers”.
Q&As are not binding but ESMA and national regulators take them seriously so unless your national regulator has indicated otherwise, you will be expected to comply with them. ESMA updates the Q&As regularly with further clarifications and you can submit a question to them – the link above to ESMA’s Q&A page provides details of how to submit a question.
Languages: the guidelines are available in the EU languages. The Q&As are available in English only.
The EU is made up of 28 countries (currently…). Each EU Member Country has to transpose a number of MiFID II/MiFIR rules into its national law: these include
Click here for the list of national legal rules by which each EU country has implemented MiFID II, communicated to the European Commission.
In the UK you will find the bulk of the MiFID II rules in the following:
Languages: national rules are only available in the national language(s).
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Financial services regulatory consultancy, specialising in MiFID II: resources, training & tips