In a bid to strengthen investor protection and make financial markets more efficient, resilient and transparent, the European Union (‘EU’) has put in place, as of 3 January 2018, its updated Markets in Financial Instruments Directive (‘MiFID II’) and Markets in Financial Instruments Regulations (‘MiFIR’). 
Will it apply to funds based in the Cayman Islands?
The legislative framework applies not just to the financial services industry in the EU, but also to those buying assets based upon trades with an EU connection. Directors will need to inform themselves on the obligations imposed by the new regime and the information which will need to be stored to meet the demand for transparency. The increased information kept by parties to trades affected by MiFID II and MiFIR may be sought by investors and will be available to regulators and (should the investments fail) liquidators, which will enable scrutiny of the activity of those in charge of the fund’s investments.

What was MiFD?
The existing MiFID applied across the EU from November 2007, with the aim to create a single market for investment services and harmonise protection for those who invest in financial instruments. It set out rules for investment firms on: their organisation; how to conduct business; authorisation for regulated markets; regulatory reporting; transparency obligations for trading in shares; and rules on how to admit financial instruments to trading. MiFID II and MiFIR were published in the EU’s Official Journal in 2014 and came into force on 3 January 2018. 
What are the changes in MiFIDII and MiFIR?
The protection of investors is strengthened through the introduction of new requirements on product governance and independent investment advice, the extension of existing rules to structured deposits, and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, cross-selling, remuneration of staff, and best execution. MiFID II and MiFIR set out:
-    new reporting requirements and tests: these are designed to increase the amount of information available, and reduce the use of dark pools and trading on dealer networks (over-the-counter trading);
-    a strict set of organisational requirements on investment firms and trading venues involved in high-frequency-trading; and
-    provisions to increase competition and regulate access to central counterparties (which guarantee against a party’s default on the agreement), trading venues and benchmarks. 
Does the EU give any guidance?
On 18 December 2017 the European Securities and Markets Authority  updated its Question and Answers document (Q&A) adding ten more topics, including inducements, suitability, and provision of investment services and activities by third country firms. ESMA plans to add to the topics already covered by the Q&A in the coming months. Further information is available on ESMA’s website including Guidelines on a variety of specific aspects of MiFID II and MiFIR. ESMA will continue to update and publish information on its website including, in certain circumstances, specific product intervention powers which would allow ESMA and national supervisors to temporarily prohibit or restrict the marketing, distribution or sale of a financial instrument or a type of financial activity or practice.
Solomon Harris
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The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.


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