MiFID v EMIR

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The two major pieces of regulation covering the European investment banking and trading worlds are MiFID — the Markets in Financial Instruments Directive and EMIR — the European Market Infrastructure Regulation.

It is easy to get them confused, as they somehow impact on a lot of the same material: securities, transactions, swaps, stuff like that. The best way of thinking about them is that MiFID is regulates financial services, and the people who offer them to the public, to make sure they are behaving themselves and not taking advantage of the poor misguided souls who buy and sell financial services and products, while EMIR is designed to regulate and protect the financial system itself and therefore is focussed on setting standards and ensuring safety rails are in place to avoid the concentration of market risk in the system.

MiFID came into force in 2007, and was conceived and enacted well before the global financial crisis, as part of the EU’s general development and harmonisation of its internal market. EMIR was a direct response to the financial crisis.

So, at a super high level, what is the difference between MiFID and EMIR?

Comparison between EMIR and MiFID

Aspect	EMIR	MiFID
Regulation Type	Regulation (implemented directly into EU law)	Directive (implemented through national legislation)
Objective	Mitigating systemic risk in OTC derivatives markets. Therefore this focuses on investment activity, whoever is doing it.	Harmonising EU financial markets regulation. Therefore this focuses on investment firms who are offering services to the public.
Regulator	European Securities and Markets Authority (ESMA)	National Competent Authorities (NCAs)
Scope	Regulates how participants transact in OTC derivatives markets, in particular: Clearing: When they have to clear transactions across a central counterparty. Margin: When they have to post regulatory variation and initial margin. Reporting: What they have to report about their trades to trade repositories	Regulates how financial services businesses provide investment services and activities to customers Regulated activities: The Investment services and activities set out in Annex I section A of MiFID. Client categorisation: The “professional”, “elective professional” and other (generally regarded as “retail”) client categories set out in Annex II of MiFID. Best Execution: The best execution obligations set out in Article 27. Transaction reporting: Don’t ask me why, but transaction reporting to National competent authorities is handled by MiFID.