European Commission unveils changes to MiFID II amid Kovid’s crisis

Valdis Dombrowski

John Thies | AFP | Getty Images

Strict financial regulations in Europe, known as MiFID II, have been over two years – but change is just around the corner.

The European Commission, the executive arm of the European Union, will announce its market adjustments on Friday in the Financial Instruments Directive (Mifid), which was first introduced in 2007 and then updated in 2018.

The regulation separated the business and research arms of brokerage firms. The objective was to make their stock recommendations completely independent of their business operations. However, regulations have prompted many brokers to stop researching small firms as a way to reduce costs.

In this context, the Commission believes that regulation is preventing much-needed investment in the real economy at a time when the region is reacting to a critical crisis.

Vladis Dombrovski, Executive Vice President of the European Commission told CNBC on Thursday, “What we will present tomorrow is the targeted package to facilitate the financing of European companies through the capital market, so it is going to make targeted amendments to Mifid. “

This proposal will outline a new “simplified recovery prospectus, allowing companies to move into financial markets to raise capital. There will be some simplifications on securitization as well as we are looking at the issue of this research and it is small and How is affecting the medium. ” Companies and how we can address this, ”said Dombrovsky.

Mifid is set by the European Union and covers all 27 countries, and also affects trades in other jurisdictions – such as when a US lender is looking to sell financial instruments to an EU-based client. Britain is expected to be completely out of the European Union by the time the new amendments are adopted, but it may choose to follow these rules.

The amendment comes just days after the EU received a breakthrough deal that would allow the commission to tap markets and raise up to 750 billion euros ($ 869 billion) – something never before done by the 27-member bloc has gone.

French President Emmanuel Macron (L) takes photographs with his smartphone from a document kept by German Chancellor Angela Merkel (R) during the EU summit in Brussels on July 20, 2020.

John Thays | AFP | Getty Images

The so-called recovery funds will be disbursed in the coming years in the form of grants and loans. It was hailed as the victory of all European countries after the longest EU summit over the weekend. It has also been warmly welcomed by market participants.

However, the member states are yet to figure out how they will repay this new debt. They must either introduce new taxes at the EU level or increase their own contributions to the general EU budget.

Speaking to CNBC, Dombrovsky said the commission would soon prepare a detailed proposal for new taxes.

The issue is particularly sensitive for two reasons: There is no consensus among 27 EU governments, such as the imposition of new tariffs; And there are some fears of possible retaliation from the United States, mainly if the European Union approves a common digital tax.