CZECH IMPLEMENTATION OF MIFID Investor Protection Conference on

CZECH IMPLEMENTATION OF MIFID (Investor Protection) Conference on Implementation of Mi. FID Split – 15 June 2007 Jan Šovar Ministry Sovar. Finance of Jan

DISCLAIMER The Ministry of Finance of the Czech Republic, as a matter of policy, disclaims responsibility for any private publication or statements by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Ministry or of the author’s colleagues on the staff of the Ministry. Jan Sovar 2

Agenda n n n n Transposition status Process of the transposition Client classification (eligible counterparties) Best execution Transaction reporting Passporting Home - Host Minimum standard for the mandate and powers Jan Sovar 3

Transposition status n Czech Republic 31 January 2007 – deadline for Mi. FID transposition was not met n no Article 4 notifications made n n 1 November 2007: application date for firms and Member States n A questionnaire-based survey of the COM Jan Sovar 4

Process of the transposition n 03/2006 n Project Group at the Ministry n Work program 2006 -2007 n 03 -12/2006 Analyses of discrepancies and deficiencies n Consultative working groups n Draft and release of consultation papers (CP) n Jan Sovar 5

Process of the transposition n Publications of Consultation Papers n CP on Conduct of Business Rules (09/2006) n CP on Market Infrastructure (11/2006) n CP on Scope and Definitions (11/2006) n CP on Organisational Requirements (12/2006) Jan Sovar 6

Process of the transposition n 1 st drafting of the legislation (12/2006 -03/2007) n CWGs – round tables n Intra-Ministry Consultation n 2 nd drafting of the legislation (re-draft) (04 -05/2007) n Extra-Ministry Consultation n Some conceptual rifts Jan Sovar 7

Process of the transposition n Submission to the Government (06/2007) n Endorsement of the Government (summer/autumn) n Parliament (House of Deputies, Senate) n Simultaneous work of CNB on the secondary legislation (2007) Jan Sovar 8

How do we protect investors? n n Eligible counterparties – no nanny approach Investor need to receive sufficient information to make informed decisions n n But information is not enough. Firms should always act in the best interest of their clients n n n Retail client agreements Strict limits on inducements Management of conflicts of interest KYC rules Best execution Safeguarding of client assets Differentiation between retail and professional client Jan Sovar 9

Choice of client classification Source: http: //ec. europa. eu/internal_mar ket/securities/d ocs/isd/dir 2004 -39 implement/dirbackgroundnote _en. pdf Background note Jan Sovar 10

Best execution § take all reasonable steps to obtain the best possible result for its client when executing an order, taking into account a number of specified factors and any other consideration relevant to the execution of the order; § establish and implement effective arrangements for complying with the above requirement, including the creation of an order execution policy; § provide appropriate information about the policy to its clients and obtain their consent to it; and § monitor the effectiveness of its order execution arrangements and policy. Jan Sovar 11

Best execution Commission’s view – best execution will only apply in dealer markets where the firm is action on client’s behalf when executing an order n CESR feedback on best execution – CP n Jan Sovar 12

Transaction reporting Maintain or tune up the transaction reporting regime n Shape of CESR Level 3 guidelines n n current To which authority do branches make their transaction reports? n Firm’s option, all transaction can be reported to the host authority only n Scope of the reporting obligation n Interim solution, regulators are allowed to collect reports of the client facing as well as market facing n CESR will launch a review after 12 months Jan Sovar 13

Passporting: Home & Host n Who’s responsible for oversight of investment business done by a branch with clients outside the host jurisdiction? Not to leave gaps in consumer protection n Interpretation of Art 32 (7) of the Mi. FID n Essential the CNB is able adequately to oversee branch’s activities within the Czech territory n CESR CP on the Passport under Mi. FID n Jan Sovar 14

Minimum standards for the mandate and powers § Jan Sovar 15

Future efforts (? ) § To enhance the level of represention of retail investors’ voice in Europe § To streamline current ombudsman schemes and compensation schemes across member-states § To develop adequeate qualification of investors and correlation to categories of products Jan Sovar 16

Thank you for your attention ! jan. sovar@mfcr. cz or jan. sovar@yahoo. co. uk Jan Sovar 17