When it comes to financial services and products, how intimately do you know your rights? The start of 2018 year saw the introduction of two important regulatory initiatives, MiFID II (Markets in Financial Instruments Directive II) and GDPR (General Data Protection Regulation). Built on regulations imposed as a result of the 2008 financial crisis, both attempt to make financial services safer and easier to understand for consumers, writes FXTM Senior Writer Ben Lovell-Viggers.
The implications of these new regulations are significant for both professional and day traders. So, on the off-chance that you don’t have access to your own team of lawyers and compliance experts, here’s an in-depth look at what MiFID II and GDPR really means.
Don’t be fooled by the uninspiring name – MiFID II is a powerful piece of regulation that has consumer interest at its heart. The original legislation took aim at transparency amongst retail and institutional investors, alongside an attempt at standardising regulatory disclosure. Significantly, the first MiFID gave financial services companies an obligation to make all costs, charges and fees clear to potential consumers before they committed to a product.
MiFID II picks up what its predecessor started – and with the commodities, currency and credit markets firmly in its sights, represents a significant widening of the regulatory scope. But it’s not just about tying up loose ends – MiFID II seeks to better protect consumer funds by implementing stricter policies. This includes making all costs and fees more transparent, expressing any incurred as a percentage in an appropriate currency, and making sure that clients are aware of any costs at least once every year. As if that weren’t enough, MiFID II also requires that financial services companies record any client communication regarding transactions or financial advice.
Despite the difficulties that businesses face complying with the new regulation, it’s hard to argue against it. MiFID II comes hot on the heels of a recent report by the UK’s Financial Conduct Authority (FCA), which probed the fund management sector. The report found that many investors were confused about which services they were paying for, and indeed how much they were paying.
GDPR sets out to safeguard consumers in a different way. Put simply, it represents an attempt to deal with humanity’s compulsion to populate the internet with personal data and sensitive information. Perhaps that’s unfair – after all, nearly every online interaction requires the user to divulge personal information, whether you’re shopping for food or registering for a newsletter. Nonetheless, when it comes into effect on the 25th of May, 2018, GDPR aims to strengthen data protection for consumers in the EU, helping individuals take back control over their data – whilst simultaneously streamlining regulatory requirements for businesses and institutions.
Like MiFID II, GDPR is an opportunity for regulatory bodies to build on previous legislation, closing loopholes and limiting ambiguity. It makes protecting customer data a priority for financial services companies: this includes restricting third-party access to databases, minimising the amount of personal information collected, deleting any data that’s no longer required for businesses purposes and expanding EU ‘Right to be Forgotten’ laws to include online information.
And that’s just the beginning. To combat situations like the one in which Uber covered up the theft of 57 million users’ personal data, GDPR ensures that companies are legally obliged to inform data authorities about any leak of consumer information within 72 hours of discovery. The legislation also requires businesses to carry out Data Protection Impact Assessments (DPIAs) before collecting certain types of data. These aid the regulatory process by helping companies foresee any risk to their clients’ information.
There are some harsh penalties for noncompliance. Ignoring the regulations can land companies with fines of up to 4% of their global revenues, with lesser fines metered out for improper record taking or not notifying consumers after a data breach.
What you’ll notice
If you use a trading platform – whether you’re buying or selling currency, stocks or commodities – there’s a high likelihood that that you’ll receive a letter requesting current documentation. This is because MiFID II compels financial services firms to maintain up-to-date customer records. Failure to respond with the relevant data could prevent you from trading in future, so it’s worth your while responding. Aside from this, your average trader should notice very little – the real action is taking place in the compliance and legal departments of financial services companies around the world.
Think of MiFID II and GDPR as the airbags in a car. It’s easy to forget they exist, until something goes wrong. However, if something does happen – whether it’s a mis-sold financial product or a data breach – you can rest assured that the new regulations have got your back, and the power to punish infringements.
Despite these regulatory breakthroughs, your best chance of succeeding in the markets comes with a sound education; only then can you develop an informed approach to investing. Why not avail yourself of the wealth of educational articles, videos and webinars on the FXTM website? Whether you’re an experienced trader brushing up or an ambitious amateur looking for a head start, it’s got everything you need for a solid grounding in FX.
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