MiFID II (Markets in Financial Instruments Directive II)

What is MiFID II

MiFID II refers to Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, which repealed and replaced the original Markets in Financial Instruments Directive (MiFID I, Directive 2004/39/EC). Together with Regulation (EU) 600/2014 (MiFIR), which is directly applicable across the EU, it constitutes the central pillar of the European regulatory framework for capital markets and investment services.

In Spain, MiFID II was initially transposed by Royal Decree-Law 14/2018 and subsequently consolidated into the Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión (LMVSI), with detailed conduct rules for investment services firms set out in Real Decreto 813/2023, de 8 de noviembre.

Scope of application

MiFID II applies to investment services firms (ESI): securities dealers, securities agencies, independent financial advisors (EAFI), and collective investment fund managers (SGIIC) when providing individual portfolio management or investment advice. Credit institutions providing investment services on an ancillary basis are also subject to MiFID II conduct obligations. Since December 2024, certain MiFID II requirements interact with MiCA Regulation obligations for digital assets that qualify as financial instruments.

Key MiFID II conduct obligations

Client classification: Firms must classify each client as retail, professional or eligible counterparty (Articles 4 and 30 MiFID II; Articles 205-213 LMVSI). The level of protection differs significantly by category: retail clients receive the highest level of protection; eligible counterparties the lowest.

Suitability and appropriateness assessments: For investment advice and discretionary portfolio management, the firm must conduct a full suitability assessment to verify that the recommended product or service matches the client’s risk profile, investment objectives, financial situation and knowledge. For execution-only services, a narrower appropriateness assessment applies.

Conflicts-of-interest management: The firm must identify, manage and — where necessary — disclose to clients any situations where the firm (or its staff) may act in a way that conflicts with the client’s interests.

Best execution: The execution policy must ensure that client orders are executed on terms most favourable to the client, taking into account price, cost, speed, likelihood of execution, settlement, size and nature of the order.

Costs and charges disclosure: Investment firms must inform clients of all associated costs and charges — both their own fees and third-party charges — on a prospective basis (before the service) and retrospectively (annually).

Practical implications

Breach of MiFID II conduct obligations is classified as a very serious infringement under Article 294 LMVSI, with fines of up to €5 million or twice the profit obtained. Investment firms also have transaction reporting obligations to the CNMV under the post-trade transparency regime of MiFIR.

For information on designing and implementing MiFID II compliance programmes in Spain, see BMC’s financial regulatory practice.