Fit for MIFID II

Fri, 01/09/2017

Slovenia’s Finance Ministry drafted a new Market in Financial Instruments Act.  By Vanda Močnik Kohek, Senior Relationship Manager, GSS Slovenia         


The Ministry of Finance prepared the first draft version of the new Market in Financial Instruments Act (ZTFI-1) and presented it for public discussion in late July. The new Act will implement two EU directives: MIFID II and MIFIR and other EU regulations on markets in financial instruments.

The main novelties related to the implementation of the above-mentioned EU directives and regulations are:

1. A more detailed definition of:

  • conditions for the establishment and acquisition of licenses for brokerage houses and other investment companies;
  • management, supervision and prohibition of activities for brokerage houses and other investment companies.

2. Brokerage houses will be subject to greater accountability when advising clients before and after the execution of trades and other related services with special focus on management of conflicts of interest and protection of investors. The investment companies, which manufacture financial instruments for sale to clients, would be obliged to establish a process of approval of such financial instruments and regularly review these products.

Within this process, the target group of clients shall be defined after all risks, pertaining to the group, are taken into consideration. The brokerage companies will be obliged to present to the investors all costs, taxes and eventual duties, related to the particular financial instrument. The costs will have to be reported to clients at least once per year.

3. The Security Market Agency (ATVP) remains as the primary supervisor of the Slovene securities market. The Act prescribes additional supervision capacity for the Agency on the prevention and detection of prohibited activities. The obligations of the Agency to report to the ESMA and co-operation with other supervision authorities in other countries will increase. Changes in the composition of the Council of the Agency are also anticipated. Currently, the CEO of the Agency was by law the president of the Council and the National Assembly could appoint Agency employees as members of the Council. According to the new Act, the CEO of the Agency and its employees cannot be appointed as members of the Council. The Council will consist of independent experts.

Additional to the required implementation of EU regulations on financial instruments, the new Act prescribes a bankruptcy process for brokerage houses and the activation of an investors’ protection scheme. It includes:

  • Specialties, related to bankruptcy of brokerage houses,
  • The competences of involved institutions,
  • Obligations of participants to the system of the investors’ protection scheme,
  • Righteous and guaranteed investments,
  • Additional supervising authorisations and measures of Securities Market Agency on supervision.

Last year one of the Slovene brokerage houses went bankrupt and the bankruptcy revealed deficiencies of the current bankruptcy process and activation of the investor protection scheme: The proposed changes are necessary for the better protection of investors in Slovenia and the prevention of such events in the future.


Effective as of 2018

In line with the MIFID II Directive, the Act will be valid from 3 January 2018. That means there is quite a short period for public discussion and further improvement of the draft version. Another problem that concerns market participants and institutions are the short periods for implementation, predicted in the draft version of the Act. The brokerage houses should comply with new Act by 3 April 2018. The Ljubljana Stock Exchange would have to implement the changes within six months. The CSD – KDD would have to adjust its regulations and activities with new regulations within three months. The Securities Market Agency will have to prepare new regulations and amend existing ones by the beginning of July 2018.

With the intention to avoid delays in implementation of the new Act, the market participants through their industry organisations, are closely co-operating with the Securities Market Agency and IT providers so that the preparation of changes, required in IT applications and internal regulations, started soon after the first version of the draft was published.    


Vanda Močnik Kohek

Senior Relationship Manager