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Harmonised protection of investors at European level


Harmonised protection of investors at European level

MiFID (Markets in Financial Instruments Directive) is an EU directive that entered into force in November 2007. This directive strengthened the legislative framework and facilitated the harmonisation and integration of capital and financial markets in the European Union, and had three main aims:

  • Improve the competitiveness of EU financial markets
  • Strengthen the protection of investors in financial instruments
  • Allow greater competition across Europe in the provision of services to investors and between trading venues.

The financial crisis highlighted areas for improvement and called for a review of the existing regime. This is why MiFID II was launched to establish a safer, sounder, more transparent and more responsible financial system. Basically, the focus of MiFID was shifted from increasing competitiveness in the EU financial markets to increasing investor protection and transparency.
In addition, PRIIPs, the Packaged Retail and Insurance-Based Investment Products Regulation, will complement the MiFID II requirements by increasing the pre-contractual transparency for clients. Both MiFID II and PRIIPS will enter into force in January 2018.

Further information

EU legal information on MiFID II
Key EU information documents for PRIIPS
BIL customer information on PRIIPs

MiFID in practice

MiFID I and II as well as PRIIPS affect the relationship that you, as an investor, have with BIL. Here is an overview of the main changes:

We can help you take full advantage of the protection and opportunities arising from MiFID.
Do you have any questions about MiFID and its implications for you?
Contact your branch or your Relationship Manager.

Client categorisation

MiFID requires banks to place their active investor clients into one of three categories:

  • retail clients
  • professional clients
  • eligible counterparties

This categorisation is necessary as investors do not all have the same level of knowledge and experience of financial instruments and the related risks. It ensures that each client has an appropriate level of protection, with retail investors naturally enjoying the greatest protection.

What type of client are you?

  • Retail clients

    Clients that are neither eligible counterparties nor professional clients are automatically considered as retail clients. Retail clients benefit from the highest level of protection.

  • Professional clients

    These include large undertakings which meet at least two of the following size requirements on a company basis:

    • balance sheet total: EUR 20 000 000
    • net turnover: EUR 40 000 000
    • own funds: EUR 2 000 000.

    Professional clients have the necessary expertise to make their own investment decisions and to assess and bear the financial consequences of any risks.

  • Eligible counterparties

    These are professional clients (for example investment companies, credit institutions, pension funds, central banks, etc.) which operate in the financial sector and are therefore deemed to have the necessary investment expertise.

How to change your client category

Clients have the possibility of asking for the following changes of category:

  • Switch between professional and retail client categories: a retail client may forego part of the protection and request to be considered as a professional client. Inversely, a professional client may ask for the higher degree of protection of retail clients
  • Switch between professional and eligible counterparty categories: a professional client may ask to be considered as an eligible counterparty and vice versa.

You can request your Relationship Manager to change your client classification. BIL will decide at its discretion whether to refuse or accept your request and reserves the right to change client classifications on its own initiative.

Investor profiles

In addition to establishing different categories of clients, it is essential to have individual investor profiles. This is why MiFID requires financial institutions to request certain information from their clients. In this context, we have drawn up a questionnaire to determine the knowledge and experience in investment products, investment objectives and horizon, financial constraints and financial situation of our retail clients and “on request” professional clients. In addition, the questionnaire enables BIL to determine a client’s ability to bear losses.

The suitability of products and services for the investor’s profile.

The Bank must take account of your investor profile when offering your products and services. If your investor profile has already been established with BIL, your Relationship Manager may contact you at some point to update it, especially if it is more than ten years old. If your profile has not yet been established, please make an appointment with your Relationship Manager to do so. Otherwise, BIL will unfortunately no longer be able to provide you with investment recommendations and will be unable to verify that its products and services are suitable for you.

There are two types of investor profiles, for natural and legal persons. Joint account holders can choose whose investor profile should be the reference for the joint account. There is also a questionnaire for customer representatives to ensure they invest in products that are appropriate for their level of financial expertise.

Investment services

When providing advisory or discretionary management services, BIL may only recommend investment products corresponding to your investor profile to ensure a product is suitable for you. In other words, BIL must take into account your knowledge and experience as well as your financial situation. This includes your ability to bear losses, your investment objective and your level of risk tolerance. When providing investment advice, a suitability test will be carried out and BIL will provide you with a suitability statement before each transaction. This suitability test enables BIL to ensure that the risk level of your portfolio corresponds to your risk profile.

When the investment service provided is a service other than investment advice or portfolio management, BIL is required to carry out an appropriateness test in order to verify that you as a retail client have the necessary financial knowledge and experience to understand the risks involved in investing in a complex product. No appropriateness or suitability testing is required for execution only services, provided they concern non-complex financial instruments such as listed shares, non-structured UCITS shares as well as listed bonds and money-market instruments without embedded derivatives.

More information on BIL’s investment products can be found here
More information on the suitability reporting can be found here

The Best Execution principle

BIL ensures client orders are executed on the most favourable terms for our clients. The best execution venue is determined with regard to price, cost, speed, likelihood of execution and settlement, the size and type of the order, the nature of the client and any other consideration relevant to the execution of the order.

BIL has formalised its Order Execution Policy/Best Execution Policy, which all investors should read carefully.

Further information

BIL general terms and conditions
Risk disclosure
Claims information
Conflict of interest

Client reporting

Clear and comprehensive information at all levels.

BIL provides you with adequate information at all stages of the execution of your transactions. Our objective is to enable you to make informed investment decisions by providing you with detailed, transparent information.

To this end, BIL has upgraded and extended its current client reports and reporting processes.The reports include increased disclosure regarding the services provided, financial instruments, the proposed investment strategy and costs and charges. Clients will also benefit from new reporting based on loss thresholds, the revised client classification and pre-trade suitability.

Here is an overview of the new client reports that will be introduced in line with MiFID II:

  • Pre-trade suitability report: BIL will provide a report to retail clients that includes an outline of the advice given and how the recommendation provided is suitable for them, including how it meets the client’s objectives and personal circumstances with reference to the investment term required, the client’s knowledge and experience, the client’s attitude to risk and their capacity for loss.
  • Post-trade suitability report : this report is used to check whether a client portfolio still corresponds to the client’s predefined risk profile following the execution of an order.
  • Pre trade costs & charges reporting: this document lists all the costs and charges associated with the investment services provided to clients, as well as all costs and charges incurred in relation to the financial instruments we offer. The indicated costs are a reasonable estimate of the actual charges. Third party payments are disclosed separately. For investment services, an illustration will show the cumulative effect of costs on return.
  • Execution reporting: for each order completed, the client will receive a detailed report.
  • 10% loss reporting : the client will be informed if the portfolio loses 10% of its value (or a multiple of 10%) if they have chosen a discretionary management mandate or if, as a retail client, their investments in instruments using leverage and/or contingent liabilities1 lose more than 10% of their value (or a multiple of 10%).
  • Post trade reporting: the client will be sent a more detailed asset report. This will summarise all their investment activities and show to what extent assets increased or decreased in value during the period under review. If the client benefits from a discretionary management service, the report will also include information regarding trends on the major financial markets, including, in particular, two listed index funds that can be compared against the performance of their portfolio for both the bond and the equity market .
  • Post trade costs & charges reporting : this report states the exact amount of all costs and charges associated with the investment services provided to clients, as well as all costs and charges incurred in relation to the financial instruments we offer. Exact amount of third party payments are disclosed separately. For investment services, an illustration will show the cumulative effect of costs on return.

The reports will be available on BILnet.

1Contingent liability transactions can potentially result in financial or other liabilities for the investor that exceed the cost of acquiring the instrument.

Simplified offer and pricing

There will be a new, simplified set of BIL investment products with a revised, standardised pricing structure that is better adapted to your individual needs.

BIL will provide you with ex-ante and ex-post information on all costs and charges for provided investment services as well as for the manufacturing and managing of financial instruments. Third party payments are disclosed separately. For investment services, an illustration will show the cumulative effect of costs on return.

Further information