Your rights as investor

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The Markets in Financial Instruments Directive (MiFID) is an important piece of European legislation which deals with issues that affect you when dealing with firms that provide investment services in Europe.

Think about the financial products that you own. You probably have one or more bank accounts, a home loan, a credit card, some shares, a pension plan, an investment fund… MiFID only applies to some of these products such as shares, bonds, derivatives and units in investment funds or collective investment schemes.   It does not apply to deposits or loans, nor to insurance products. For those products which are covered by MiFID, firms may offer you services such as managing investments on your behalf, giving you advice on investments and buying or selling financial products.

One of the main purposes of the MiFID Directive is to harmonise investor protection throughout Europe. The degree of investor protection that you will receive is directly related to the reliance that you place on the firm and on yourself. For example, if your financial knowledge and experience are low and you are asking the firm to advise you or to take decisions on your behalf you will be afforded the highest degree of protection.
What do you expect from an investment firm?

MiFID sets three overarching principles that will apply to firms when they are doing investment business with you. These are:

  • To act honestly, fairly and professionally, in accordance with your best interests. This principle protects you when you are dealing with a firm that, as a professional, is in a stronger position than you.

  • To provide you with appropriate and comprehensive information which is fair, clear, and not misleading. This will help you to understand products and services so that you can make informed decisions and ensures that you do not receive biased or confusing information.

  • To provide you with services that takes account of your individual circumstances. This is to ensure that your investments correspond to your investor profile and requests.

The MiFID principles apply to every step of the firm's relationship with you.

Investments always entail some degree of risk.The higher the expected rate of return, the greater the risk. Depending on market developments, you could lose some or all of your initial investment. Some investments cannot easily be sold. Check to see if there is any penalty or charge if you must sell an investment quickly or before its maturity date. Investments in securities issued by a company with little or no operating history or published information may involve greater risk. The past success of a particular investment is no guarantee of future performance.

Protect yourself:-

  • Never send money to purchase an investment based simply on a telephone conversation.

  • Never make cheques payable to a representative of an intermediary. Paying by cash can be dangerous – avoid it if you can and use cheques (or bank drafts) instead. It is safer. Always ask for an official receipt. Never send cheques to an address different from the business address of the intermediary listed in a prospectus or “terms of business letter”.

  • Before signing a long term contract, make sure that you are fully aware of what might happen to your investment in case your plans change. You should make sure that you have read and understood the prospectus, and you are aware of all the risks involved.

  • You should be aware of any penalties for early termination, which may be significant.

  • Never allow your contract notes or your valuation statements to be delivered or mailed to your intermediary as a substitute for receiving them yourself. These documents are your official record of the date, time, amount and price of each security purchased or sold. Verify that the information in these statements is correct.

Be aware for:-  

  • Representations of spectacular profit, such as, “Your money will double in six months”. Be suspicious of anyone who tells you “Invest quickly or you will miss out on a once in a lifetime opportunity”. Remember, if it sounds too good to be true, it probably is!

  • “Guarantees” that you will not lose money on a particular investment or an excessive number of transactions in your account. Such activity generates additional commissions for your investment firm, but may provide no better investment opportunities for you.

  • Recommendations to make a dramatic change in your investment strategy, such as moving from low risk investments to speculative securities, or concentrating your investments exclusively in a single product. Likewise switching your investment in a collective investment scheme from one sub-fund to another, or to a different fund with the same or similar investment objectives. Unless there is a legitimate investment purpose, a switch may simply be an attempt to generate additional commission for the investment firm.

  • Pressure to trade the account in a manner that is inconsistent with your investment goals and the risks you want or can afford to take. Assurances from your intermediary that an error in your contract note or valuation statement is due solely to computer or clerical error. Insist that the investment firm or compliance officer promptly send you a written explanation. Verify that the problem has been corrected on your next valuation statement  

This text is only a brief overview and not a full description of your rights under MiFID. The contents are merely descriptive and do not constitute legal advice.
The MiFID legal texts are available at http://ec.europa.eu/internal_market/securities/isd/index_en.htm

Additional information:

A Guide to Investing (October 2012)
This guide has been prepared by the European Securities and Markets Authority (ESMA). ESMA is an independent authority of the European Union and its members are the national regulators responsible for securities and investment services business. Indeed, the MFSA is an active member of ESMA. More information about ESMA is provided here: www.esma.europa.eu.



Last updated: Sep 07, 2016