EU Law (MiFID II) and effective regulation: a step towards financial stability?
| DOI | 10.1177/1023263X19877648 |
| Date | 01 December 2019 |
| Published date | 01 December 2019 |
| Author | Mariia Domina Repiquet |
| Subject Matter | Articles |
Article
EU Law (MiFID II) and effective
regulation: a step towards
financial stability?
Mariia Domina Repiquet*
Abstract
This article examines to what extent EU law is effective in preserving global financial stability and,
therefore, preventing financial crisis. A difference between macro- and micro-approaches to
financial regulation is explained. Whilst the former is concerned with the minimization of systemic
risks and maintaining of the financial stability, the latter is focused on the effective regulation of all
financial markets’ players, whatever the size of their portfolios. These approaches are the two
sides of the same coin, that is limiting the possibility that future financial crises will occur. This
paper argues that the effective regulation of investment firms, especially their duty of care, helps to
preserve overall financial stability. The choice of the MiFID II as a case study is explained by its
appreciation as one of the biggest achievements of EU policymakers in the context of financial law
so far. How does a duty to ‘know your customer’ affect global financial stability within the EU?
What is the role of soft law in preserving the financial system? These are the questions that this
paper seeks to answer.
Keywords
MiFID II, investment firms, regulatory law, EU law, financial stability, systemic risk, effective
regulation, ‘know your customer’
I. Introduction
The paramount objective of EU law is to create a safe legal environment within the EU, whereby
the rights and interests of all parties are protected as much as possible. It comes as no surprise, then,
that EU law should provide for favourable economic conditions within the EU, which allow for the
* PhD Candidate in comparative financial law, CNRS 7354 UMR DRES University of Strasbourg, and a Lecturer (ATER) in
French private law at the University of Lorraine, IAE Nancy, France
Corresponding author:
Mariia Domina Repiquet, University of Strasbourg, 5 General Rouvillois Alley, Strasbourg, 67000, France.
E-mail: mariia_repiquet@sfr.fr
Maastricht Journal of European and
Comparative Law
2019, Vol. 26(6) 833–848
ªThe Author(s) 2019
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DOI: 10.1177/1023263X19877648
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development of the EU economy and the individual prosperity of its citizens. At the same time,
these economic conditions should foster financial stability and security. Therefore, the agenda of
EU policymakers should be concerned with an (optimal) balance of promoting entrepreneurship
and guaranteeing a safe legal environment.
The 2007/2008 financial crisis has shown that EU law was ill-equipped to prevent and limit
global financial disruption.
1
The crisis in the EU originated as a consequence of the US subprime
mortgage crisis, but an event that marked its beginning had taken place in the EU: it was a collapse
of the Northern Rock Bank, headquartered in the UK. The deposit holders were unable to withdraw
their savings, which led to a massive collapse of the EU financial industry.
This paper argues that EU law (both hard and soft law) serves as an appropriate mechanism to
prevent future financial crises. Its features, such as harmonization and primacy, allow for the
establishment of common rules that apply to all financial markets’ players within the EU. By
imposing a minimum standard of conduct, EU law establishes a secure legal framework that
guarantees that all those participating in the financial markets execute their activity with due care
and skill, in compliance wi th all applicable legal re quirements. This conduct w ill serve as a
safeguard against the occurrence of future financial crises.
The proposed framework for the analysis of EU law as a mechanism against financial crises can
be summarized in the following manner. The analysis will firstly discuss the rationale according to
which EU law can and should be efficient in this respect, with an emphasis on the harmonization of
the obligations of investment firms. Then, the comparison between hard and soft EU law will be
presented, so as to evaluate how this symbiosis guarantees a crisis-free, or at least a minimum-
crisis, economy. This paper focuses upon the Markets in Financial Instruments Directive 2014 and
its Regulation (hereinafter ‘MiFID II’)
2
that regulate individual portfolio management. MiFID II
sets up an extensive framework on the obligations of investment firms towards their clients, which
has important repercussions on the private law of Member states. Much of the scholarly discussion
so far has been focused on the impact of said Directive on the protection of clients under private
law, yet MiFID II has not attracted attention with regard to its ability to prevent future financial
crises through the lenses of private law. A difference will be drawn between a micro-approach and
a macro-approach to preserve financial stability. According to Armour, ‘in contrast to micropru-
dential regulation, which is aimed at safeguarding financial firms, the macroprudential approach
focuses on the stability of the financial system as a whole’.
3
Whilst MiFID II is appraised as
establishing an effective macro-prudential framework, i.e. combatting systemic risk, the impact
of its private law character in the context of preserving financial stability has been somewhat
overlooked so far. In other words, this research is not concerned with how well MiFID II counter-
acts systemic risk, especially in relation to significant financial institutions. Rather, it argues that
effective regulation of all investment firms, especially in terms of their harmonize d duties of
conduct, guarantees financial stability. Both approaches –preventing systemic risk and establishing
an effective regulation of markets’ participants – are two sides of the same coin, that is, of a
foundation of financial stability.
1. The same can be said about US law.
2. Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instru-
ments and amending Directive 2002/92/EC and Directive 2011/61/EC (recast), [2014] OJ L173/349.
3. J. Armour et al. (eds.), Principles of Financial Regulation (OUP, 2016), Ch. 19 ‘‘The Macroprudential Approach’’,
p. 409, para. 19.1.
834 Maastricht Journal of European and Comparative Law 26(6)
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