The better we know you, the better we can support you
The new MiFID II directive, which takes effect on 3 January 2018, strengthens investor protection and transparency requirements at all levels.
3 questions to Luc Rodesch, Head of Private Banking:
What is MiFID?
MiFID I is the EU Markets in Financial Instruments Directive. This directive, which took effect in November 2007, aimed to ensure better investor protection, harmonise and integrate financial markets, and increase competition and transparency on these markets. MiFID II, which takes effect on 3 January 2018, strengthens these different aspects at all levels.
How can we offer you better protection?
The better we know you, the better we can support you:
To ensure that you invest in products that match your investment objectives and investment profile, we will determine:
- Your classification: there are three categories of clients: Retail Client, Professional Client and Eligible Counterparty. These each have their own tailored levels of protection
- Your investor profile: establishing your investor profile allows us to assess your financial knowledge and experience, your investment objectives and horizon, your financial situation and your risk tolerance
Structuring investment services
You will need to choose between three types of services depending on your degree of involvement in managing your investments and the banking relationship you wish to have with Banque de Luxembourg: discretionary management, investment advisory or stock market order execution services.
To help you make better informed investment decisions, you will receive:
- clear, complete and transparent information throughout the execution process of your transactions
- reports before and after each transaction
- updates on your portfolio
Find out more about the reports
Improving financial market security and supervision
Banque de Luxembourg’s policies for handling conflicts of interest and best execution of orders have been strengthened in order to ensure the best possible execution of your orders in terms of the price, the costs, the speed, the likelihood of execution and settlement, the size and the nature of the order, as well as any other considerations relating to order execution.
What is the purpose of the client classification?
We don't all have the same knowledge and experience in financial matters. For this reason, each client category entails different rules of conduct and levels of protection. There are three client categories:
- Retail Clients is the default category for clients who are neither eligible counterparties nor professional clients. These clients enjoy the highest level of protection, which translates specifically into the provision of detailed information before and/or after each transaction, and a precise and in-depth evaluation of knowledge and experience
- Professional Clients (by nature or upon request) includes both financial sector professionals (such as banks, investment funds, insurance companies, etc.) as well as clients who can be treated as professional clients upon request and under certain conditions. Clients in this category have a lower level of protection than retail clients
- Eligible Counterparties is a specific sub-category of clients within the professional clients category. Clients can only obtain this classification if acting as a financial services provider to execute orders on behalf of clients, to execute orders on their own behalf, or to receive and transmit orders in one or more financial instruments. These counterparties are deemed to have the necessary investment experience and are afforded the lowest level of protection and transparency compared to other client categories.
Is it possible to change categories?
Subject to certain conditions, you may ask the Bank to change your client category.
Why determine your investor profile?
In order to meet the MiFID requirements and ensure a suitable level of protection in terms of your investment decisions, the Bank assigns you an investor profile based on the information contained in your MiFID questionnaire. This profile allows the Bank to provide effective guidance throughout your banking relationship and offer you investment services and financial instruments suited to your circumstances.
How do you determine your profile?
Your investor profile is established using our MiFID questionnaire. The information collected relates to the following points:
- Your knowledge and experience of financial instruments
- Your financial situation and your ability to bear losses
- Your investment objectives, including your investment horizon and risk tolerance
The MiFID questionnaire, which has been designed by the Bank, thus comprises two separate documents aimed at collecting:
- Information about you (collected via the document “Determine your investor profile – Part 1”, to be completed by each person with access to the account – account holders, attorneys, agents, etc.)
- Information about your account (collected via the document “Determine your investor profile - Part 2”, to be completed by mutual agreement of all account holders and agents acting in the name and on behalf of the account holder(s))
Each part should be completed, as applicable, by one or several persons, alone or by mutual agreement.
What about individuals and corporate entities?
The MiFID rules apply to both individuals and corporate entities. This means you need an investor profile as soon as you choose to receive advisory services or discretionary management.
What investment services are involved?
You will be asked to choose between three types of services depending on your degree of involvement in the management of your investments and the banking relationship you wish to have with Banque de Luxembourg:
- Discretionary management: You entrust the active management of your portfolio to our specialists, in line with your investment strategy
- Investment advice: You receive investment advice from our investment experts
- Stock market order execution service: You take complete control of your investment decisions without prior advice from our experts
What checks and controls are there?
Depending on the chosen investment service, the Bank will carry out various checks and controls. Our role is to assess whether each planned investment corresponds to your personal situation, your financial knowledge, your stock market experience, your objectives and your ability or willingness to accept a certain level of risk.
If you opt for Investment Advice or Discretionary Management
Banque de Luxembourg will be required to ensure that the investment products proposed are in line with your investment strategy and investor profile. This gives you increased protection as regards your investment decisions.
This check will be carried out at the portfolio level prior to execution of the transaction.
If the financial instrument or transaction is deemed inconsistent with the strategy of your portfolio, the Bank:
- Will not complete the transaction under discretionary management
- Will not recommend the transaction within the scope of an investment advisory mandate
But you will be able to execute it by opening a stock market order execution account.
If you opt for the stock market order execution service
Banque de Luxembourg will be required to check whether your orders relating to complex products are consistent with your knowledge and experience.
The Bank will warn you when a transaction is unsuitable. It will be your decision whether to uphold the order or not. You will then be responsible for the execution of the transaction.