What is MiFID II in simple terms?

MiFID II covers investment firms, market operators, data reporting services providers and third-country firms that operate a branch in the Union (Article 1). Anyone who provides investment services as a regular business needs an authorization (Article 5). ESMA, the European Securities and Markets Authority, keeps a public list of all investment firms in the Union.

The directive sets the rules for those firms: how they are organized (Article 16), how they handle conflicts of interest (Article 23), how they design products for a target market and how they deal with clients (Articles 24 and 25).

MiFID II replaced MiFID I, Directive 2004/39/EC, which was repealed with effect from January 3, 2018. The recast added product governance: a firm that designs a financial instrument must define the target market of end clients and distribute the product to that market (Article 24(2)). It also banned third-party payments for independent advice and for portfolio management (Article 24(7) and (8)).

MiFID II and MiFIR differ in legal form. MiFID II is a directive, so each Member State writes it into national law. MiFIR is a regulation and applies directly; since January 3, 2018 (Regulation (EU) 2016/1033) it holds the duty to report transactions.

MiFID II requires a firm to act "honestly, fairly and professionally in accordance with the best interests of its clients" (Article 24(1)). All information to clients, marketing included, must be "fair, clear and not misleading" (Article 24(3)).

Before it gives investment advice or manages a portfolio, the firm collects the client's knowledge and experience, financial situation including the ability to bear losses, and investment objectives including risk tolerance (Article 25(2)). It may only recommend what suits that profile. Advisers must have the knowledge and competence for the job, and each Member State publishes the criteria (Article 25(1)).

Inducements under MiFID II are fees, commissions or non-monetary benefits that a firm receives from a party other than the client, such as a fund company paying a distribution fee. A firm may accept them only if they are designed to raise the quality of the service to the client and do not impair its duty to act in the client's best interest (Article 24(9)).

The research unbundling rules apply the same logic to broker research. Under Article 13 of Delegated Directive (EU) 2017/593, research is no inducement if the firm pays for it from its own resources or from a separate research payment account funded by a specific research charge to the client. Directive (EU) 2024/2811 now lets a firm pay for execution and research jointly or separately, if it tells clients its choice; Member States apply it from June 6, 2026.

MiFID II transaction reporting is the duty of investment firms to report "complete and accurate details" of every transaction in financial instruments to the competent authority, "no later than the close of the following working day" (MiFIR Article 26(1)). A firm can report through an approved reporting mechanism (ARM). The ARM must pass the report on no later than the close of the working day after the trade (MiFID II Article 66).

In Germany MiFID II works through the Wertpapierhandelsgesetz. Section 63 WpHG holds the general conduct rules, section 70 the rules on inducements (Zuwendungen) and on research accounts (Analysekonto). BaFin supervises compliance under section 6 WpHG. In Austria the WAG 2018 transposes Directive 2014/65/EU, and the FMA supervises investment firms under it.

Most German stock exchange trading takes place in Frankfurt am Main. Deutsche Börse AG operates the Frankfurt Stock Exchange, an entity under public law with the electronic trading system Xetra, which accounts for about 90% of stock exchange turnover in Germany (Deutsche Börse). Deutsche Börse Group describes itself as an operator of regulated markets under these rules (Deutsche Börse, MiFID II/MiFIR).

Switzerland is outside the EU, so MiFID II does not apply there. The Swiss Financial Services Act (FinSA) and the Financial Institutions Act entered into force on January 1, 2020. FINMA Circular 2025/2 on the rules of conduct under FinSA applies from January 1, 2025 and covers client information on risks and on payments from third parties. This page gives no legal advice.