Commission calls on Hungary to implement MiFID

Source: European Commission

The European Commission has today acted to ensure safer and more competitive financial markets by asking Hungary to comply with its obligation to implement the Markets in Financial Instruments Directive (MiFID).

The aim of this Directive is to regulate investment firms and trading venues by ensuring a high degree of competition and investor protection. If the Directive is not properly implemented, investors in Hungary will not enjoy the same level of protection as elsewhere in the EU. Meanwhile, Hungarian investment firms wishing to provide cross-border services are put at a disadvantage as Hungarian law does not require them to comply with European standards. The Commission's request to Hungary takes the form of a reasoned opinion. If the national authorities do not reply satisfactorily within two months, the Commission may refer the matter to the Court of Justice.

What are the aims of the EU rules in question?

The Markets in Financial Instruments Directive 2004/39/EC (MiFID) and its implementing Directive 2006/73/EC are to significantly reduce barriers to cross-border trading of shares and cross-border provision of investment services. This would mean that there would be more competition between investment firms, regulated markets and other trading platforms. It would force markets to become more efficient, lower costs for issuers and investors of accessing capital markets and give investors a far greater choice of equities, bonds etc. to invest in - allowing them to maximise their returns. This would enable more investments in Hungary, which will in turn create more wealth and jobs.

MiFID rules also aim at ensuring a high level of protection for investors in Hungary. For example, there are strict limits on the inducements which banks or financial advisers can receive in respect of the services which they provide to their clients. When executing client orders, firms have to take all reasonable steps to deliver the best possible result. For retail clients, the emphasis is on ensuring that they get the best price for the instrument and the costs associated with the execution.

How is Hungary not respecting this rule and how are EU citizens and businesses suffering as a result?

Hungary has incorrectly transposed a number of provisions of MiFID and its implementing Directive 2006/73/EC, including provisions linked to definitions, market transparency, the passporting of investment firm authorisations and investor protection. As a result, Hungarian companies do not have the possibility to provide their services in other Member States - leaving less room for growth and jobs in Hungary's financial sector. Furthermore, investors are not able to enjoy the same level of competitiveness and protection in financial markets as elsewhere in the EU.

What are the next steps?

The Hungarian authorities have two months to reply to the reasoned opinion, providing draft legislative measures covering all the issues the Commission has identified, and a clear date for their adoption. If the Hungarian authorities fail to inform the Commission or if the Commission is not satisfied with their reply, it may refer Hungary to the Court of Justice.

About infringement procedures

The European Commission has powers under Article 258 of the Treaty on the Functioning of the European Union (TFEU) to take legal action - known as infringement procedures - against a Member State that is not respecting its obligations under EU rules. These procedures consist of three steps. The first is that the Member State receives a letter of formal notice seeking information if the Commission has concerns that there may be a breach of EU law and has two months to respond. If the Commission's concerns about a breach of EU legislation are confirmed, the Commission sends a reasoned opinion requiring the Member State to comply with EU law within two months. If there is no satisfactory reply, the Commission can refer the matter to the Court of Justice in Luxembourg. If the Court rules against a Member State and the Member State does not comply with the Court's ruling, the Commission can also request that the Court impose a fine on the country concerned.

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