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Looking for MiFID 2? Don’t forget: As of 2 January 2018, MiFID 2 is where it’s at.

Markets in Financial Instruments Directive 2004/39/EC (EUR Lex) (known as "MiFID"). See also 2006/73/EC (EUR Lex), which is fondly known thoughout our glorious continent as the MiFID Implementing Directive. IT HAS NOW BEEN SUPPLANTED BY MiFID 2.


(see HSBC note on the subject).

Art 18(1) of the MiFID Implementing Directive

1. Member States shall require investment firms, on receiving any client funds, promptly to place those funds into one or more accounts opened with any of the following:

(a) a central bank;
(b) a credit institution authorised in accordance with Directive 2000/12/EC;
(c) a bank authorised in a third country;

Under MiFID 2 Custody could become an investment service

Under MiFID I Custody – including fund administration and related services such as cash and collateral management – is currently on of the listed ancillary services. It could become oneo the full investment services under MiFID II. The European Parliament currently favours the status quo, but the Council, under the Cyprus presidency, wants it to be a full investment service. Central Securities Depositaries (CSDs), incidentally, will be governed not by MiFID II but by the forthcoming CSD Regulation.

For European custodians belonging to large banking groups the matter of whether they are regarded as providing an investment service may be largely academic since they may have implemented MiFID in 2007 as part of group-wide policy.

Even so, many custodians will be affected by the change, which has implications for the appropriateness obligation, unbundling, re-documenting and, possibly, charges, as follows:

  • Appropriateness. A firm providing investment services must be sure that the client understands the services in question and that they are appropriate for the client. This is a MiFID I requirement that will apply to custodians if custody becomes a full investment service under MiFID II.
  • Cross-selling and unbundling. Under MiFID II, when an investment service is offered with another service or product as part of a package, or as a condition for the same agreement or package, the investment firm must tell the client whether it is possible to buy the different components separately and provide costings for each component.
  • Re-documenting. Custodians currently providing an ancillary service need to provide clients with certain terms and conditions, and provide it in a "one-way" letter. But if custody becomes an investment service under MiFID II, custodians may need to provide additional information, and in a "two-way" letter requiring a response from the client.
  • Charges. Complying with the Regulation and Directive will involve much more work and costs, most of which firms will try to pass on to investors.

See Also

Conduct of Business

This is an article about the FCA’s conduct of business rules, known by its chapter in the FCA Sourcebook, COBS, which implement, among other things, MiFID (directive 2004/39/EC (EUR Lex) and implementing directive 2006/73/EC (EUR Lex)).

Anatomy™: AIFMD | CASS | COBS | Conference calls | Confis | CRR | CSA | EMIR | Equity Derivatives | FOA PCA | FUND | GMRA | GMSLA | ISDA | OSLA | PB | Swapclear | UCITS