MiFID – GENERAL PRESENTATION (practical example of Lamfalussy process) Conference on Implementation of Markets in Financial Instruments Directive (MiFID) Split – 14 June 2007 J a n Š o v a r Ministry of Finance, Czech republic

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Financial integration – legislative developments In June 1998, the European Council invited the European Commission to prepare a framework for action to develop the Single Market in financial services. In May 1999, the Commission published the Financial Services Action Plan (2000-2005), which was endorsed by the Lisbon European Council in March 2000. The FSAP consisted of a set of 42 measures intended to improve the Single Market in financial services by filling gaps and removing remaining barriers to provide a legal and regulatory environment that supports the integration of financial markets across the EU. Jan Šovar

Lamfalussy process The Committee of Wise Men, chaired by Baron Alexandre Lamfalussy, outlined in its report of 15 February 2001 several shortcomings in the legislative system for securities. The report proposed a four level approach with regard to the legislative process in order to solve these problems. Jan Šovar

Transposition of Lamfalussy Directives The Directives – adopted on the basis of the so-called "Lamfalussy approach" – fall into two categories: "level 1 Directives", which set out framework principles and "level 2 Directives", which set out the implementing measures that allow these principles to be put into practice. There are four "level 1 Directives Markets in Financial Instruments Directive (MiFID) Market Abuse Directive (MAD) Prospectus Directive (PD) Transparency Directive (TD) All four are crucial pieces of EU legislation on securities and investment business. Jan Šovar

What is MiFID? The Directive 2004/39/EC on Markets in Financial Instruments (MiFID) was adopted by the European Parliament and Council on 21 April 2004 (OJ L145/1 of 30 April 2004). It will replace the Investment Services Directive 93/22/EEC. Extends the coverage of the current ISD regime Introduces new and more extensive requirements to which firms will have to adapt Jan Šovar

Implementing measures (L2) The Level 2 implementing measures were adopted 10 August 2006. These comprise one implementing directive and one implementing regulation: Commission Directive 2006/73/EC of 10 August 2006, on organisational requirements and operating conditions for investment firms (ID) and Commission Regulation (EC) 1287/2006 of 10 August 2006, on record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading (IR). The MiFID and the Level 2 Directive are due to be transposed into the national laws of Member States by January 2007 and apply by November 2007. The Level 2 Regulation will be directly applicable, at the same time. Jan Šovar

2004/39/EC (MiFID) 2006/73/EC (ID) 1287/2006 (IR) CESR COM CESR is shortly to publish guidance on BE, inducements, passport and transaction reporting COM Launching infringements for late or faulty transposition Scrutinising Art.4 notifications, and esp. justifications Source: The role of CESR at Level 3 under the Lamfalussy Process, Ref.: CESR/04-527b http://www.cesr.eu Jan Šovar

Key cross-cutting issues Timing of transposition – 31/Jan/2007, Timing of implementation – 1/Nov/2007 Maximum/minimum harmonization Directive/regulation Linkage to existing IOSCO and CESR standards Cross sectoral co-ordination (CESR, CEBS and CEIOPS) Jan Šovar

MiFID Transposition questionnaire results summary Source: http://ec.europa.eu/internal_market/securities/docs/isd/implementation/mifid_transposition_timeline_en.pdf Jan Šovar

What significant changes does MiFID make? Range is wider A deeper degree of harmonization Cross border business Capital adequacy directive, Banking consolidation directive Jan Šovar

Which firms will be affected? In general, MiFID will cover most, if not all, firms currently subject to the ISD + some that currently are not and in some areas, the position for firms will be less clear-cut Future and option firms Some commodities firms Stock brokers and broker dealers Banks adn building societies Firms competing for the same type of business ≠ subject to same regulatory standards Jan Šovar

Lamfalussy Legue Source: http://ec.europa.eu/internal_market/securities/docs/transposition/table_en.pdf Jan Šovar

A new strategic approach With the completion of the FSAP, the future approach to the integration of financial services in Europe was being discussed. Many other Member States and industry practitioners firmly have believed that a second raft of new legislation – or a FSAP “Mark II” – is neither required nor desirable. Instead, new EU legislation should be considered on a selective basis, and only where absolutely necessary. Green Paper (03/2005) White Paper (12/2005) – EU financial service policy for the next five years Jan Šovar

More information DG Markt MiFID website CESR website http://ec.europa.eu/internal_market/securities/isd/index_en.htm FAQ on MiFID – http://tinyurl.com/ypcc6s Background notes to the MiFID – IR and ID http://tinyurl.com/hsqx6 and http://tinyurl.com/ywx6qj MiFID Transposition State of Play Legal texts, historical info, other links CESR website http://www.cesr.eu/index.php?page=groups&mac=0id=53 Expert Group – MiFID Level 3 Jan Šovar

Thank you for your attention ! jan.sovar@mfcr.cz or jan.sovar@yahoo.co.uk Jan Šovar