MiFID
The Law 14/2010, of 13 of May, on the legal framework of the banking entities and the basic administrative framework of the operative entities of the Andorran financial system takes up the principles established in the European Union Directive 2004/39/EEC, of the European Parliament and of the Council, of 21 April 2004, known as MiFID (Market in Financial Instruments Directive).
MiFID’s main aim is to provide the clients with a larger protection regarding investments, offering them transparent information and higher quality in assets’ management.
Financial institutions must categorise clients in one of the three categories specified by the MiFID Regulations:
- Retail clients: it is the categorisation aimed at most of the individual clients and companies, and it is the one which offers the highest level of protection to the clients. They have a more limited knowledge and qualification and a lesser financial and negotiation capacity.
- Professional clients: institutions and companies, those believed to have enough experience, knowledge and qualification so they are able to take their own investment decisions. The EEC Directive establishes further categorisations for professional clients and it establishes, in some cases, some specific requirements:
a) Entities which must be authorised or regulated to be able to operate in the financial markets.
b) Large companies which fulfil two of the following volume requirements:
- to have their own funds exceeding Euro 2 million.
- to have a business volume exceeding Euro 40 million.
- to have a balance sheet exceeding Euro 20 million.
c) National and regional governments and other public bodies.
- Eligible counterparties: they basically are entities and financial intermediaries (collective investment bodies and management companies, retirement funds, etc.). They are specialised clients who do not need the protection provided to the previous categorizations, given their knowledge and experience in the markets.
Any client can ask to swap categories, provided that the requirements established by the Law are fulfilled.
Entities should be aware of what their clients’ expectations and preferences are before they deal with their investments. Two kinds of test have been designed for this purpose:
- Suitability test: it determines the client’s characteristics and investment profile.
- Adequacy test: a shorter test which the entities must submit to a retail client in order to analyse whether the products categorised as being «complex» suit this kind of client or not.
The new MiFID Directive, whose main aim is to provide to the clients a larger protection regarding investments, offering them transparent information and higher quality in assets’ management implies the following action policies:
- Conflicts of interest management policies
- Risk management policies
- Asset protection policies