MIFID II

CONTEXT

The Markets in Financial Instruments Directive (MiFID) came into effect on November 1st, 2007 with the aim of creating a single market for financial services with more integrated capital markets and investor protections that would apply across all European countries. Indeed, it simplified financial services regulations throughout the European Union by laying down common rules in terms of treatment of customers and capital market operations.

In October 2011, the European Commission commenced the process to strengthen these provisions further through an update to MiFID and the Markets in Financial Instruments Regulation (MiFIR) which would result in the creation of MiFID II which came into force on the 3rd of January 2018. It is one of the most significant and substantial pieces of regulatory legislation for the industry and aims to greatly strengthen investor protections, the market organization and integrity. MiFID II provides end investors with far more transparency and investment firms will have a duty to ensure that they take all sufficient steps to obtain the best possible results for their clients. Further to this, investment firms will have to ensure they provide all necessary information to regulators so that they can identify issues that may damage investor’s interests and sustain the orderly functioning of the market.

MiFID's two main areas covered:

• Investor Protection: the Directive harmonizes the rules in this area and aims at affording customers the same protection all round whatever the European Bank which provides the investment service,

• Competition: the Directive does away with the stock exchanges' monopoly, permits the use of several different types of quotation and imposes best order execution, i.e the introduction of procedures that the banks have to implement to yield the best result for their clients. It reflects market trends: most transactions today are via electronic channels and the number of trading locations has increased (the stock exchanges come under competition from electronic trading platforms and from the banks' proprietary trading activity).

Customer classification – Reminder 

MiFID II directive is designed to offer clients varying levels of protection related to their categorisation.

MIFID II identifies three types of clients:

  • Retail Clients are notably local collectivities, the small and medium firms , physical persons
  • Professional clients own experience, knowledge and required skills to make their own investment decisions and correctly evaluate expenses incurred
  • Eligible counterparties (equivalent to Crédit Agricole)

Crédit Agricole CIB categorises clients according to their status and the information held on the client which will result in classification into one of the following categories: Retail Client, Professional Client or Eligible Counterparty. A client classified as an eligible counterparty will only be eligible to receive services from Crédit Agricole CIB such as order execution services, dealing on own account and/or reception and transmission of orders and will forgo many of the other investor protections available to retail and professional clients.

Objectives and consequences of categorization:

Upon provision of an investment service and/or an ancillary service or in respect of a financial transaction, each client will receive a level of service from Crédit Agricole CIB that accords with that client's classification in relation to the supply of investment and/or related services and/or the settlement of transactions.

Applicable rules provide a greater or lesser degree of protection for clients in accordance with the relevant client category, which assumes a deemed level of competence for each category.

Therefore retail clients will receive a greater protection from Crédit Agricole CIB than professional clients, and eligible counterparties will receive very little protection when Crédit Agricole CIB provides an eligible service.

Methods of categorisation and requests for a change in category

Each client is classified according to the relevant rules and to information collected by Crédit Agricole CIB and/or provided by the client which were broadly summarized above. Professional clients and eligible counterparties must inform Crédit Agricole CIB of all changes in their status and/or circumstances that might affect their categorization.

A client can request to be classified in a different category. A request to change category may result in a change in the level of protection for a client by a decrease in protection (opt up) or by allowing for a higher degree of protection (opt down).

Before any request for a category change, it is advised to review the protections available for each category as developed in the Information Document concerning the categorization of clients and to consult also your advisors at the bank.

Client assessments

The banks must evaluate their clients based on their knowledge and financial instruments experience, financial situation and investment objective, according to the cases. For instance, if the bank provides an investment, it must ensure that the recommended instruments are adequate for the client which beneficiates from the advice.

Furthermore, the financial establishments must provide suitable information to the client on the financial instruments and their risks, before an operation or a transaction. For the non-professional clients, this information can be known as KID (Key Information Document), as stated in the PRIIP’S Regulation.

The bank must inform its clients on its order execution policy and control its efficiency.

Information on financial instruments and associated risks

When it provides an investment or ancillary service, an investment service provider must, before any transactions takes place, supply its clients with information about relevant financial instruments and the risks associated with those instruments. This information will be adapted according to the client's classification, and its experience and knowledge of financial instruments, or transactions it undertakes.

In this respect, Crédit Agricole CIB requests that its clients, in particular those classified in the “Retail Clients” category read the Information in relation to the nature and characteristics of financial instruments and the associated risks.

This document aims to supply clients with summarized information and general warnings on the risks associated with different types of financial instruments so that clients can reasonably understand the nature and the risks of the proposed financial instruments and, consequently, make investment decisions based, amongst other things, upon their knowledge of those instruments.

The financial instruments listed in the document do not represent all of the products offered by Credit Agricole CIB, but the catalog of eligible products as defined by the MIFID II Directive.