Dutch investment advisors’ perceptions towards the MiFID II directive
| Published date | 18 December 2020 |
| Pages | 202-217 |
| Date | 18 December 2020 |
| DOI | https://doi.org/10.1108/JFRC-03-2020-0023 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Tom Loonen |
Dutch investment advisors’
perceptions towards
the MiFID II directive
Tom Loonen
Department of Postgraduate Investment Management,
School of Business and Economics, Vrije Universiteit Amsterdam,
Amsterdam, the Netherlands
Abstract
Purpose –The Markets in Financial InstrumentsDirective (MiFID) II directive was enforced in the EU in
January 2018. While EU-member states implemented this directive in their national legislation, investment
firms are still enforcingcompliance. With the purpose of “investor protection”,the purpose of this study is to
investigate the effectiveness of transparency, suitability, warning and information requirements. How do
investment advisers view and embrace these MiFID II requirements? Are differences evident within this
group of professionals?
Design/methodology/approach –In total, 267 Dutch investment advisors serving non-professional
investors daily completed structured surveys on their opinion of the acceptance and effectiveness of the
MiFID II requirements.The findings are compared with existing literature to examinesimilarities with other
legislation.
Findings –The results demonstrated differencesdepending on the investment firms’size and investment
advisors’seniorityand gender. Professionals should be critical of new legislation and regulations, as it limits
their autonomy. However, female investment advisors and those with up to ten years’experience are less
critical of the effectiveness of the MiFID II requirements, embracing them without discussion. Investment
advisors in large investment firms believethat MiFID II contributes to investors’interests, whereas those in
small and medium-sized investment firms often do not share this opinion. For example, respondents
considered cost transparency an effective requirement to achieve better investment services and protect
investors’interests.
Originality/value –The effectiveness and applicability of legislation are often viewed from a legal
perspective, and enforcement is essential. However, this study explores legislation from the perspective of
professionalsunder supervision.
Keywords Implementation, legislation, effectiveness, MiFID, investment advisors,
investment advice
Paper type Research paper
1. Introduction
The European investor directiveMarkets in Financial Instruments Directive (MiFID I; 2004/
39/EC) was enforced on 1 November 2007 to make European financial markets more
transparent and strengthen investor protection. In January 2018, a new directive (2014/65/
EU, “MiFID II”) came into effect and is applicable for all investment firms operating in
the investment sector. In daily practice, both investors and investment professionals
The author acknowledge support from DSI and Fondsnieuws for this research project. The author
also likes to express his gratitude to Manon de Groot for her assistance.
JFRC
29,2
202
Received2 March 2020
Revised7 November 2020
Accepted12 November 2020
Journalof Financial Regulation
andCompliance
Vol.29 No. 2, 2021
pp. 202-217
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-03-2020-0023
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1358-1988.htm
experience the influence of the directive on tradingand the reporting that goes with it. This
may include mandatory, pre-transactional cost transparency; possible trading platforms;
several warning requirements; suitability (reporting); and periodic value statements –all
examples of legislation implemented to protect the investor (whether professional or retail).
When it comes to the effectiveness of MiFID II, there is also much criticism. A fortiori, the
state that “the effectiveness of MiFID on reducing the effects owing to the structural
fragmentation of the market could perhaps be burdened by the cost of increasing the
probability of a systemic risk”. In a keynote speech in November 2019, the European
Securities and Markets Authority (ESMA) Chairman, Steven Maijoor, acknowledged a
position paper from the German Ministry of Finance, published in summer 2019, which
highlighted a “great deal of discontent”with several requirements under the regime
following consultation with market participants. In particular, the German regulator said
that the respondents strongly criticised the breadth of the requirements, implementation
costs, short time-frames and insufficient coordination of MiFID II and packaged retail
investment and insuranceproducts (PRIIPS) rules.
Notwithstanding the costs and scepticism, how are specific MiFID II requirements
perceived in terms of effectiveness?Now that MiFID II is embedded in day-to-day processes,
it is interesting to test whether certain requirements (in particular, specific information and
warning requirementsfor non-professional investors) are considered effective by investment
professionals who are in regular contact with these investors. The acceptance of new
requirements is subject to several academic insights. Firstly, the legal and financial
literature about the acceptanceof new legislation is presented. Here, basedon past research,
the effectiveness of new legislation is discussed. Next, the results of the study on the
effectiveness of MiFID II requirementsare presented. The last section discusses the findings
of the survey and provides recommendationsfor further research.
There are some limitations to this study. Firstly, it was conducted in the Netherlands,
and so no general conclusions can be drawn aboutthe European Union. Another limitation
is that certain respondents may have had no comprehensive information or training on the
requirements of MiFID II at the time data were collected. Nevertheless, it may be assumed
that basic knowledge is available on MiFID II, especially when dealing with (professional
and retail) investors directly.
2. Literature review
2.1 Acceptance and effectiveness of legislation
Legislation should be deemed to serve the public interest and provide reassurance that
freedom is not misused. Still,resistance can be expected when legislation is enforced, butthe
person (or persons) subjected to it does not understand or accept said legislation. This is
especially the case when legislation directly impacts personal or professional freedom.
When legislation is forced upon a professional, they can experience a gap between the
purpose of the legislation and its real meaning. Therefore, new legislation is often
considered either imperative or repressive. When it comes to investment professionals, a
certain discretionaryfreedom or the possession of “discretionary powers”,a typical criterion
for being a professional, is highly rewarded (Frowe, 2005). However, the acceptance of new
legislation may dependon several criteria, some of which are discussed later in this paper.
2.1.1 Seniority as a criterion. The professional’s experience can play a role in the
acceptance of new regulations. Joshi etal. (2008) confirmed this in a survey conducted with
52 Bahraini accountants, responding to the implementation of the International Financial
Reporting Standards (IFRS).The results showed that the more experienced respondents had
MiFID II
directive
203
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