What is MiFID all about?   MiFID is the abbreviation most commonly used for Markets in Financial Instruments Directive 2004/39/EC. With effect from 1 November 2007, MiFID has replaced the Investment Services Directive (ISD), becoming the most significant change to European Union legislation for investment intermediaries and financial markets since 1995. MiFID extends the coverage of the previous ISD regime and introduced new and more extensive requirements to which firms will have to adapt, in particular in relation to their conduct of business and internal organisation.  MiFID is a major part of the European Union’s Financial Services Action Plan (FSAP), which is designed to create a single market in financial services.   MiFID is a 'maximum harmonisation' directive designed to achieve a level playing field for firms across the European Union and EEA countries by requiring the same rules to be implemented in each state without national 'gold plating'. As it stands, only Ireland and the UK have obtained derogations from this requirement for commonality - In Ireland's case it is the ability to implement tougher client asset handling rules than are strictly required under MiFID.   MiFID comprises two levels of European legislation. ‘Level 1’, the Directive itself, was adopted in April 2004. In several places, however, it makes provision for its requirements to be supplemented by ‘technical implementing measures’, so-called ‘Level 2’ legislation.  This Level 2 mechanism is known in EU circles as the 'Lamfalussy Process' - it enables MiFID to be kept relevant in changing circumstances by tweaking its implementation with Level 2 legislation.    MiFID has made significant changes to the regulatory framework to reflect developments in financial services and markets since the ISD was implemented. It widened the range of ‘core’ investment services and activities that can be passported throughout the EU. In addition to the services covered by the ISD, MiFID: upgraded advice that involves a personal recommendation to a core investment service that can be passported on a stand-alone basis; introduced operation of a multilateral trading facility (MTF) as a new core investment service covered by the passport; and extended the scope of the passport to cover commodity derivatives, credit derivatives and financial contracts for differences for the first time. It sets more detailed requirements governing the organisation and conduct of business of investment firms, and how regulated markets and MTFs operate. It also includes new pre-and post-trade transparency requirements for equity markets; the creation of a new regime for ‘systematic internalisers’ of retail order flow in liquid equities; and more extensive transaction reporting requirements. It improves the operation of the ‘passport’ for investment firms by more clearly delineating the allocation of responsibility between home state and host state for passported branches and generally clarifying some of the jurisdictional uncertainties that arose under the ISD. Most firms that fall within the scope of MiFID also have to comply with the new Capital Requirements Directive (CRD) which will set requirements for the regulatory capital which a firm must hold. Those firms newly covered by MiFID will be subject to directive based capital requirements for the first time. The Capital Requirements Directive took effect from 1 January 2007, although transitional provisions have permitted many firms to defer its full impact until 1 January 2008. In general MiFID has grandfathered most if not all firms previously subject to the ISD, plus some that were not not. This will include: investment banks; portfolio managers; stockbrokers and broker dealers; corporate finance firms; many futures and options firms; and some commodities firms. In some areas, the position for firms will be less clear-cut. For instance, Retail banks and building societies will be subject to MiFID for some parts of their business – for example, selling securities, or investment products which contain securities, to customers - but not others, such as tracker bonds. MiFID applies to all firms conducting investment business, regardless of their legal form. Thus it applies equally to banks and non-banks, to provide a level playing field where the conduct rules and capital requirements are determined by activity undertaken, not by regulatory status. Click here to see what is happening in Ireland.