MiFID II Compliance Framework - AI-supported Investment Services Compliance

A MiFID II compliance framework encompasses all organisational and technical measures that investment firms need to meet regulatory requirements. This includes establishing an independent compliance function under MaComp, implementing suitability assessments, best execution principles, product governance processes, cost transparency for clients, record-keeping obligations and effective conflict of interest management. The framework must be regularly reviewed for effectiveness and updated to reflect new BaFin circulars and ESMA guidelines.

The compliance officer under Section 80(1) WpHG is responsible for monitoring compliance with all securities law requirements. Under the minimum requirements for the compliance function (MaComp), this includes conducting regular risk analyses, preparing a risk-based monitoring plan, advising senior management on compliance matters, monitoring employee personal transactions and ensuring adherence to conduct of business rules. BaFin expects adequate staffing and resources for the compliance function.

The MaComp (Minimum Requirements for the Compliance Function) issued by BaFin define the organisational framework for the compliance function at investment firms. Key requirements include the independence of the compliance function, an annual compliance risk analysis, a monitoring plan based on that analysis, regular compliance reports to senior management, monitoring of employee personal transactions and ensuring adequate training measures. Since 2024, MaComp also integrates updated ESMA guidelines on product governance and suitability.

The suitability assessment under Article 25 MiFID II requires investment firms to collect information about the client's knowledge, experience, financial situation and investment objectives before providing investment advice or portfolio management. Based on this information, the firm must assess whether a recommended financial instrument is suitable for the specific client. The suitability statement must be provided to the client before the transaction is executed. BaFin regularly reviews proper implementation as part of MaComp examinations.

The best execution obligation under Article 27 MiFID II requires investment firms to execute client orders to achieve the best possible result. Firms must establish an execution policy that considers factors such as price, costs, speed and likelihood of execution. Execution quality must be monitored regularly and the execution policy reviewed at least annually. Clients must be informed about the execution principles and give their consent.

Product governance under Article 16(3) MiFID II requires manufacturers and distributors of financial instruments to implement a structured product approval process. Manufacturers must define a target market for each product, conduct a cost-benefit analysis and determine the distribution strategy. Distributors must verify that the product fits their clients' target market and observe negative target market criteria. BaFin has specified these requirements in Section BT 5 of MaComp and updated them in 2024 to align with revised ESMA guidelines.

ADVISORI provides end-to-end support for the design and implementation of MiFID II compliance frameworks. This includes gap analysis of existing compliance systems, design and optimisation of the compliance function under MaComp, implementation of suitability assessment and best execution processes, building product governance structures, setting up transaction reporting and creating audit-proof documentation. Our consultants bring extensive experience from BaFin examinations and WpHG compliance projects.