Introduction

MiFID's stated objective is ‘to further integrate the European financial markets, thus creating a real level playing field for all European stakeholders. In order to reach this objective, we need to guarantee an appropriate level of transparency and information as well as investor protection against the complexity of the market.’ To this end, MiFID introduces two new key concepts in European law, i.e. client suitability and appropriateness assessments. Together with the best execution requirement, they form the core building blocks of the new conduct-of-business rules of MiFID.

A broad conduct of business framework was in place in the ISD, also introducing elements of suitability and appropriateness at a very high level. However, similarly to best execution, its definition was vague and its enforcement was left to the country where the service was provided. The ISD requested firms to act in the best interest of their clients and to seek information about their ‘financial situation, investment experience and objectives’ (art. 11.1). The ambiguous wording led to a variety of rules, creating hindrances to an effective single market in securities trading for both professional and retail investors.

Under the MiFID regime, investment firms have to comply with an entirely new set of obligations, requiring them to re-map and re-classify new and already existing clients into three main categories. These are ‘eligible counterparties’, ‘professional clients’ and ‘retail clients’. The severity of conduct of business rules is graduated and predicated upon a client's classification, retail clients being afforded the highest level of protection.