From regulation to supervision – the trajectory of MiFID II

A trader at the Deutsche Boerse in Frankfurt, Germany
A trader on the floor of the Deutsche Boerse in Frankfurt, Germany (source: dpa)
  • EU financial institutions face stringent disclosure requirements to curb fraud and abuse
  • Costly and powerful IT solutions are needed to comply with MiFID-II
  • Early evidence suggests the new regulations won’t be effective; but that is the least of their problems

The global financial crisis of 2007-2009 revealed pervasive misconduct in the financial services industry, involving some of the largest and most prestigious American and European financial institutions. Ranging from abusive practices in mortgage securities and commodities markets to the manipulation of foreign exchange and interest rates, not to mention questionable accounting, fraud in the financial sector appeared in many guises. Its scope and pattern convinced many economists that financial malfeasance – and the failure of regulatory systems designed to cope with it – were at the root of the debacle that surprised the world 10 years ago, plunging its leading economies into their longest and deepest recession since World War II.

In the aftermath, there has naturally been a deep concern among policymakers on how to reform the regulation of financial markets to make them a safer place for investors. In this context, the European Union came up with an ambitious project to reregulate the financial industry. This new “Markets for Financial Instruments Directive” (MiFID II) went into effect in January 2018, after repeated delays.

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