Often, on broker websites you can find information that they have a license not of a regular regulator, but of a regulator operating in accordance with the MiFID Directive. What it is, good or bad, read on.
Financial regulators can be divided into 4 groups:
- US regulators (NFA, CFTC, SEC). They are considered the most authoritative regulators, each of which is responsible for a particular area. Often, brokers are forced to obtain several licenses, subject to the checks of several brokers. The US market is closed, because brokers are forced to open their subsidiaries in the US;
- European regulators (FCA, BaFin, FINMA, AFM). Having their license obliges brokers to provide services exclusively to traders from Europe. Therefore, in order to cover also other markets (Asia, CIS), brokers are forced to open subsidiaries with registration in offshore jurisdictions;
- offshore regulators (MFSA, BVI FSC, Marshall Islands regulator);
- Offshore regulators operating in accordance with the MiFID Directive (CySEC). The “golden middle” between European and offshore regulators.
MiFID Directive: provisions and scope
The MiFID Directive is a document that regulates the order of relationships and interactions between all participants in the European financial market: regulators, brokers, investors, etc. These are common standards that allow working with each other independently of a country within a single legal field. The directive began to be developed in 2004, subject to the laws of the countries, and entered into force in 2007. Now MiFID requirements are mandatory in 27 EU countries and 3 EEA countries.
- The purpose of the MiFID Directive: increasing the competitiveness of market participants, the introduction of investment services, the transparency of the partnership, the protection of investment activities.
MiFID includes broker companies and dealing centers, banks, investment and insurance funds, clearing and consulting structures. The standards of the Directive regulate the work of currency, stock and commodity exchanges, regulate the conduct of operations with securities, currency and derivatives, contain provisions on the settlement of disputes between investors and companies.
In accordance with MiFID standards, brokers are required for 5 years to keep all information about transactions (including correspondence and telephone records), warn customers about potential risks and maintain confidentiality. In accordance with the quality of the services provided and the degree of protection, companies receive one of three statuses determining their level. The MiFID directive is a set of rules that complements national legislation and smoothes the corners between partners from different countries.
In 2014, a supplement came out that was called MiFID II Directive. It covers the following areas:
- registration procedure for foreign investment companies;
- development of new forms of supervision, including technical equipment;
- supplementing the rules for trading in derivatives;
- Implement an OTF technology tool to monitor exchanges and trading platforms.
Conclusion. The availability of a regulator’s license for a trader is not critical in terms of resolving conflicts with a broker. First, both the FCA and CySEC warn in advance that individual claims are not considered and are redirected to the Ombudsman’s website of jurisdiction. True, it’s still worth filling out the established form – the regulators promise that when checking a broker they take into account all the claims. On the sites of offshore regulators, even the form for filling is not. Secondly, there have been repeated instances when regulators missed bankruptcy. Examples: WorldSpreads, Pantheon Finance and IronFX. The license of the regulator should not be a decisive argument when choosing a broker. But the fact of its existence and operation in accordance with the MiFID Directive says that the reporting and the work of the broker are under control.