The Impact of MiFID II on EU Financial Markets

What is MiFID II?

MiFID (Markets in Financial Instruments Directive) II is EU legislation that came into effect on January 3, 2018. It replaces the original MiFID introduced in 2007 and was designed to strengthen investor protection and market transparency after the 2008 financial crisis.

MiFID II is a directive, meaning that member states can translate it into their national law. MiFIR is a regulation that applies directly to all EU countries without needing to be written into national laws.

What are the key areas MiFID II covers?

Investor protection and conduct of business. Rules on how firms deal with clients, disclose costs, and ensure suitability of products and advice.

Product governance. Requirements that financial products be designed and distributed with a defined target market in mind.

Best execution. Firms must take reasonable steps to secure the best possible results for clients when executing orders.

Market transparency. Rules around pushing trading onto regulated venues and away from opaque over-the-counter and dark-pool trading.

High-frequency trading (HFT). Tighter reporting, algorithm testing, and market-making requirements aimed at evading manipulative HFT practices.

Recordkeeping. Requirements to record calls and electronic communications relating to transactions.

What does MiFID II require for recordkeeping?

Article 16(7) of MiFID II requires that firms make and retain records of telephone conversations and electronic communications related to transactions and the provision of client order services. These requirements ensure that firms can demonstrate compliance to regulators and, where needed, support eDiscovery. See our guide to FCA SYSC 10A communication recording requirements, which implements this obligation in the UK.

How does MiFID II relate to MiFIR?

SMiFID II and MiFIR were introduced together and are designed to work as a pair. MiFID II sets the overarching framework for investor protection and conduct of business, while MiFIR is the technical regulation that standardizes reporting requirements, including pre- and post-trade transparency and detailed transaction reporting to a central repository.

Both were amended with changes taking effect from January 17, 2025. These updates – sometimes referred to as MiFID 3 and MiFIR 2 – focused on transparency for equities, non-equities, and derivatives, and on the data reporting providers behind the EU’s consolidated tape system.

For a full breakdown, see our guide to MiFID II and MiFIR: key differences and similarities.

How does MiFID II apply after Brexit?

Following Brexit, the UK onshored MiFID II and MiFIR into domestic law. The UK’s own framework, including the FCA’s Conduct of Business Sourcebook (COBS) and UK MiFIR, closely mirrors the EU regime’s core principles of investor protection, transparency, and fair competition.

A “MiFID II override” provision gives precedence to the EU directive’s requirements in certain cross-border situations, which firms operating in both markets need to navigate carefully. Since Brexit, the EU and UK regimes have been diverging gradually as each updates its own rules. In the EU, updates are made through ESMA, and in the UK, through the FCA’s own reforms.

What recent changes affect MiFID II?

The most significant development is the January 2025 package of amendments to MiFID II and MiFIR, sharpening transparency requirements for equities, non-equities, and derivatives, and updating the rules for data reporting service providers supporting the EU’s consolidated tape. Both ESMA and the FCA continue to consult on further updates to their regimes, so firms operating across both regions should expect continued variances rather than a single fixed rulebook.

FAQs

What is MiFID II?

MiFID II is EU legislation that’s been in force since January 3, 2018. It governs investor protection, market transparency, and conduct of business in EU financial markets.

What is the difference between MiFID II and MiFIR?

MiFID II is a directive that sets goals EU member states can transpose into national law. MiFIR is a regulation that applies directly and equally across all member states and is focused on technical transparency and transaction-reporting requirements.

Does MiFID II require call recording?

Yes. Article 16(7) requires firms to record and retain records of telephone conversations and electronic communications relating to transactions and client order services.

Does MiFID II still apply in the UK after Brexit?

The UK onshored MiFID II and MiFIR into domestic law. The UK’s own framework, including COBS and UK MiFIR, closely mirrors the EU regime, though the two are gradually diverging as each jurisdiction updates its own rules.

What changed in the 2025 MiFID II and MiFIR updates?

Amendments made on January 17, 2025, sometimes called MiFID 3 and MiFIR 2, sharpened pre- and post-trade transparency requirements for equities, non-equities, and derivatives, and updated rules for data reporting service providers.

How Global Relay helps

MiFID II’s recordkeeping obligations mean firms must capture and retain calls and electronic communications relating to transactions. Global Relay’s recordkeeping compliance solution captures voice and messaging across every channel in a compliant, tamper-proof archive, supporting MiFID II Article 16 obligations alongside FCA SYSC 10A. Learn more about Global Relay Voice.