International Law

MiFID: WILL IT AFFECT THE DUTCH CARIBBEAN?

By Karel.Frielink

Markets in Financial Instruments Directive

MiFID is an EU directive which provides a harmonized regulatory regime for investment services for all members of the European Economic Area and which became effective on 1 November 2007. MiFID?s objectives are to increase competition ? and thus to make the price of corporate finance deals more competitive ? and to increase consumer protection in investment services. MiFID removes barriers between stock exchanges and creates a single European financial market, a level playing field.

The Directive requires, a.o., that investors be categorized between professional and retail clients to ensure the right level of protection. However, it is not so easy to categorize clients and to assess their suitability for each type of investment product.

MiFID also requires a ?best execution? practice: all reasonable steps should be taken to obtain the best possible result in the execution of an order for a client. It is not always clear what this principle is, which opens the way to future litigation. A ?best execution? practice means that the firms must have systems in place to record and store this information - such as price, venue, cost and speed ? to be able to prove that they are providing best execution.

One of the concerns is that the costs of compliance and investment costs as a result of MiFID may well outweigh the benefits. On the other hand, although the immediate costs per player may be as high as EURO 100 million, in the long-term the benefits may outweigh such costs: in a single market regulations are more similar and thus the future costs will be lower.

The Netherlands Antilles is not part of the European Economic Area and is thus not directly affected by MiFID. However, several European players have a branch or subsidiary in the Netherlands Antilles. Some players focus on a wider compliance framework also encompassing their non-EU branches and subsidiaries. Furthermore, as far as clients in the Netherlands Antilles are concerned, categorizing them could be done here instead of in Europe provided such systems are in place. Finally, many non-European countries/players may adapt their business conduct rules in view of MiFID. The impact of MiFID in the Netherlands Antilles might therefore be much greater than initially thought.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on March 14, 2008 (boomark / email).