In 2007 the Markets in Financial Instruments Directive (MiFID)1 entered into force – succeeding the Investment Services Directive (ISD). MiFID lays down regulations for investment firms, banks and regulated markets, which allow them to provide investment services throughout Europe using a single passport.
An important objective of MiFID is to ensure adequate investor protection. MiFID contains regulations on transparency towards clients, on information-collection with respect to the client’s experience and knowledge (‘know your customer’) and on the best execution of orders. The level of protection depends on the nature of the investor: retail, professional or eligible counterparty. Clients have the right to request a categorisation that entails higher investor protection.
Pension funds make extensive use of external investment services, like investment consultancy, asset management, fiduciary management and trading and brokerage services. Some pension funds have internal investment departments, but most of them outsource their investment management. MiFID recognises pension funds as professional investors, because they have the in-house expertise or the resources to hire in independent investment advisers.
EFRP expects that the introduction of MiFID provides pension funds with more choice on a more competitive market for investment services. It is important that pension funds are classified as professional investors. They must have access to the full range of financial services to achieve optimal investment performance.
1 Directive 2004/39/EC, 21 April 2004 on markets in financial instruments, OJL 145, 30/04/2004