Difference Between MiFID and Non MiFID Business

Difference Between MiFID Business and Non MiFID Business Featured Image

The main difference between MiFID and non-MiFID business is that MiFID (Markets in Financial Instruments Directive) business involves financial services and activities regulated under the MiFID framework, a European Union legislation aimed at increasing transparency and improving consumer protection in investment services. In contrast, non-MiFID business refers to financial services and activities that fall outside the scope of MiFID regulations, potentially including areas like retail banking, insurance, and certain types of credit activities that do not involve investment services as defined by MiFID.

What is MiFID Business and What is Non-MiFID Business

MiFID Business refers to investment services and activities that are regulated under the Markets in Financial Instruments Directive (MiFID) and its successor, MiFID II. This European Union legislation aims to create a more transparent, competitive, and integrated financial market. MiFID covers a wide range of financial services, including investment advice, portfolio management, execution of orders on behalf of clients, and trading in financial instruments such as stocks, bonds, derivatives, and commodities. The directive imposes requirements on financial institutions for conduct of business, transparency, reporting, and market infrastructure to enhance investor protection and market efficiency.

Non-MiFID Business encompasses financial services and activities that are not regulated under the MiFID framework. These might include traditional retail banking services like savings accounts, loans, and mortgages, as well as insurance products, and certain credit activities. Non-MiFID businesses are governed by different sets of regulations and directives, which may focus more on consumer protection, financial stability, and preventing financial crime, rather than the transparency and harmonization goals of MiFID. The regulatory requirements for non-MiFID businesses vary depending on the specific service and jurisdiction.

Key Differences Between MiFID and Non-MiFID Business

  1. Regulatory Framework: MiFID business is governed by the MiFID and MiFID II directives, focusing on investment services and markets, whereas non-MiFID business falls under other regulatory frameworks.
  2. Scope of Services: MiFID regulates investment-related services like trading and portfolio management, while non-MiFID business includes retail banking, insurance, and other financial services not primarily related to investments.
  3. Transparency Requirements: MiFID business has strict transparency and reporting requirements aimed at protecting investors, which are not necessarily applicable to non-MiFID business.
  4. Client Protection Measures: MiFID includes specific rules for client categorization, suitability, and appropriateness assessments, which may not be present in non-MiFID business regulations.
  5. Market Infrastructure: MiFID addresses market infrastructure aspects, including trading venues and systematic internalisers, which are not relevant for non-MiFID business activities.
  6. Professional Conduct: MiFID business requires adherence to specific codes of conduct and conflict of interest policies tailored towards investment services, differing from those in non-MiFID business.
  7. Product Governance: MiFID II introduces detailed product governance requirements for investment products, which do not apply to non-MiFID financial products.
  8. Investor Compensation Schemes: The level and scope of investor compensation schemes may differ between MiFID and non-MiFID business.

Key Similarities Between MiFID and Non-MiFID Business

  1. Financial Services Sector: Both are integral parts of the broader financial services sector, serving different needs of consumers and businesses.
  2. Regulatory Compliance: Both MiFID and non-MiFID businesses must comply with relevant regulatory frameworks and legal requirements.
  3. Consumer Protection: Each aims to protect consumers, albeit through different regulations and focuses (investor protection in MiFID vs. broader financial protection in non-MiFID).
  4. Risk Management: Both types of businesses are required to implement risk management practices to safeguard against financial risks and instability.
  5. Anti-Money Laundering Measures: MiFID and non-MiFID businesses both need to adhere to anti-money laundering (AML) regulations.
  6. Technology Use: Both sectors increasingly rely on technology for service delivery, data management, and compliance.
  7. Global Impact: Although MiFID is an EU directive, its principles and effects extend globally, influencing non-MiFID businesses and international regulatory practices.

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Hidayat Rizvi
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