EU · MiFID II · TITLE II AUTHORISATION AND OPERATING CONDITIONS FOR INVESTMENT FIRMS · CHAPTER I Conditions and procedures for authorisation
Article 16 MiFID IIOrganisational requirements
Sets investment firms' core organisational requirements: compliance policies and personal transaction rules, conflict-prevention arrangements and product governance for manufacturers and distributors, business continuity and ICT systems under DORA, controls on outsourcing, record keeping, recording of telephone calls and electronic communications relating to client orders and own-account dealing (kept for five, and up to seven, years), safeguarding of client financial instruments and funds, and a ban on title transfer collateral arrangements with retail clients.
Amendments and application dates
| Amending act | Change | Applies from |
|---|---|---|
| Directive (EU) 2022/2556 | Text amended | 17 Jan 2025 |
Level 2: delegated and implementing acts
- Delegated actIn forceLegal basis
AI summaryAmends Delegated Directive 2017/593 to build sustainability factors into product governance: manufacturers and distributors must take clients' sustainability-related objectives into account when setting and reviewing a product's target market.
- Delegated actIn forceLegal basis
AI summaryAmends the MiFID II Delegated Regulation 2017/565 to integrate sustainability: firms must consider sustainability risks in their organisational arrangements, risk management and conflicts of interest, and investment advisers and portfolio managers must ask about clients' sustainability preferences in the suitability assessment and must not recommend products as meeting preferences they do not meet. Applies from 2 August 2022.
- Delegated actIn forceLegal basis
AI summaryCorrects cross-reference errors in Delegated Regulation 2017/565, in Article 1(1) (which should refer to Article 64(4), Article 65 and Chapter VIII) and in several entries of Annex I on record keeping.
- Delegated actIn forceLegal basis
AI summaryThe MiFID II Delegated Directive on safeguarding client financial instruments and funds (deposits, use of client assets, title transfer collateral, a single officer responsible, auditor reports), product governance duties for manufacturers and distributors, and inducements, including rules for independent advice, portfolio management and research. Since amended, including by Delegated Directives 2021/1269 (sustainability) and 2026/374 (research payment).
- Delegated actIn forceLegal basis
AI summaryThe main MiFID II Delegated Regulation: defines key terms (such as investment advice, systematic internaliser, algorithmic and high-frequency trading, and direct electronic access) and sets detailed organisational requirements and operating conditions for investment firms, including compliance, conflicts of interest, remuneration, client information, suitability and appropriateness, best execution, client order handling, reporting to clients, record keeping and transaction-level obligations.
Level 3: ESMA Q&As, guidelines and opinions
- Q&AAnsweredInferred · 90%
AI summaryIn a Commission answer, investment firms may not keep interest earned on client funds deposited with a credit institution, because Article 16(9) MiFID II prohibits using client funds for their own account.
- Q&ARejectedExplicit reference
AI summaryAsked how investment advice is attributed in split or system-supported workflows, and what organisational features evidence advice given 'under supervision'. ESMA rejected the question, so there is no answer.
- Q&ARejectedExplicit reference
AI summaryAsked whether investment advice is attributed to whoever communicates the personal recommendation rather than whoever produces the suitability statement, and whether these steps can be split in automated processes. ESMA rejected the question, so there is no answer.
- Q&ARejectedExplicit reference · 90%
AI summaryAsked whether an entity entering into distribution agreements with third-party intermediaries, as part of marketing tasks delegated by a UCITS management company, performs an outsourced critical or important function, and how proportionality applies. ESMA rejected the question, so there is no answer.
- Q&AAnsweredESMA rulebook
AI summaryWhere a client places an order at a face-to-face meeting by signing a written form or contract, that document must contain at least the information required by Article 76(9) of the MiFID II Delegated Regulation, with any missing details recorded separately.
- Q&AAnsweredESMA rulebook
AI summaryCalls and electronic communications that only discuss investment options must be recorded under Article 16(7) MiFID II if they are intended to, and may, result in a transaction, even where no trade can be entered during the interaction and the order is placed through another channel.
- Q&AAnsweredInferred · 80%
AI summaryIn a Commission answer, firms setting the negative target market for a product that does not consider sustainability factors must also consider any clients' sustainability-related objectives the product is incompatible with, though depending on the product this may result in no negative target market for that criterion.
- Q&AAnsweredInferred · 85%
AI summaryManufacturers must design charging structures that the target market can understand: no artificially low introductory costs, unnecessarily complex fee formulas, excessive or split cost components or duplicated fees, and testing of disclosures where costs are particularly complex.
- Q&AAnsweredInferred · 85%
AI summaryManufacturers must have robust, documented, management-approved procedures to identify and quantify all product and likely service costs (including inducements) and to check that the cost structure, including how costs accrue, suits the target market, for example avoiding high up-front costs for clients with short horizons.
- Q&AAnsweredInferred · 85%
AI summaryTo show that costs do not undermine a product's return expectations (Article 9(12)(b) of the MiFID II Delegated Directive), manufacturers should simulate returns net of all implicit and explicit costs at the design stage, for example by scenario analysis, Monte Carlo methods, the PRIIPs moderate scenario, comparison with similar products or fair-value calculations, using robust, documented methods that also reflect typical taxes.
- Q&AAnsweredInferred · 85%
AI summaryESMA considers funds investing mainly in CoCo bonds generally unsuitable for the retail market and expects manufacturers and distributors to consider excluding retail clients from the positive target market, or placing them in the negative target market, at the latest at their next product review.
- Q&AAnsweredExplicit reference · 90%
AI summarySecurities financing transactions fall within the MiFID II record-keeping requirements in Article 16(6) and Section 8 of the Delegated Regulation, which apply to all services, activities and transactions without exception.
- Q&AAnsweredExplicit reference · 90%
AI summaryThe recording requirement in Article 16(7) MiFID II applies at least to reception and transmission, execution and dealing on own account, and to communications intended to result in them, such as advice given when a client order is intended; Member States may extend it to other services.
- Q&AAnsweredExplicit reference · 90%
AI summaryThe Article 16(7) MiFID II recording requirement applies to channels used for receiving and transmitting client orders even where they cannot be used to execute orders, because it covers communications that 'relate to' each relevant service.
- Q&AAnsweredInferred · 75%
AI summaryFirms may meet their record-keeping obligations on advice (records of services, the suitability statement and minutes of face-to-face conversations) in a single document, provided it meets each requirement, is kept for the required period and is given to the client where required.
- Q&AAnsweredInferred · 90%
AI summaryFirms must be able to convert encrypted records kept under Article 16(6) and (7) MiFID II into an unencrypted, easily analysable format, or provide the means to decrypt them, when clients, competent authorities or other entitled parties request copies.
- Q&AAnsweredInferred · 90%
AI summaryFirms may use third parties to record calls and electronic communications, but recording counts as a critical or important operational function for the outsourcing rules.
- Q&AAnsweredInferred · 95%
AI summaryA client's right to request records kept under Article 16(7) MiFID II extends to internal conversations and communications between the firm's staff and contractors that relate to that client's order.
- Q&AAnsweredInferred · 95%
AI summaryStaff may use firm-approved or personal mobile devices for order-related activity only if the firm can record or copy the communications; its recording policy must cover such devices, including retention for at least five years, preventing deletion, leavers, lost devices and how often data is transferred.
- Q&AAnsweredInferred · 90%
AI summaryRelevant telephone conversations and electronic communications must be recorded in full, from start to end, because it cannot be known in advance whether they will lead to a transaction.
- Q&AAnsweredInferred · 85%
AI summaryMiFID II does not require a separate function to monitor recorded communications; the existing compliance, risk management and internal audit functions suffice, but periodic monitoring of the records is an essential part of the firm's compliance arrangements.
- Q&AAnsweredInferred · 95%
AI summaryThe Article 16(7) MiFID II recording requirement covers any electronic communication relating to client orders or dealing on own account, including video conferencing, fax, email, Bloomberg mail, SMS, chat, instant messaging and mobile apps; ESMA will not publish an exhaustive list because technology keeps changing.
- Q&AAnsweredInferred · 90%
AI summaryMiFID II does not stop firms charging clients for access to recordings kept under Article 16(7), subject to national law, but any charge must be reasonable so as not to deter requests.
- Q&AAnsweredInferred · 95%
AI summaryInternal calls and electronic communications that are intended to result in, or relate to, order reception and transmission, execution for clients or dealing on own account must be recorded under Article 16(7) MiFID II, for example a sales desk asking the trading desk for a quote; back-office staff are not normally caught, and internal face-to-face conversations fall under the general record-keeping rules in Article 16(6).
- Q&AAnsweredInferred · 95%
AI summaryArticle 16(7) MiFID II recording covers conversations and communications with clients that relate to agreeing to carry out client order services or own-account dealing, and with others about handling orders and own-account trades, including prices, quotes and indications of interest even if no deal results; firms must stop such conversations happening on unrecorded systems.
- Q&AAnsweredExplicit reference · 90%
AI summaryRecordings under Article 16(7) MiFID II must be kept for five years, and for longer, up to seven, only if the competent authority asks within those five years; once asked, the firm must stop deleting the records until the authority says they are no longer needed.
- Q&AAnsweredInferred · 90%
AI summaryMonitoring of recorded calls and communications must be risk-based and proportionate to the firm's business, taking account of factors such as own-account dealing, client order volumes and characteristics, clients, products and market conditions, and the results should feed into the firm's compliance arrangements.
- GuidelinesPublishedESMA rulebook
AI summaryESMA guidelines of April 2022 (ESMA35-43-3006) on the appropriateness assessment and execution-only services under Article 25(3) and (4) MiFID II, covering information to clients, collecting and checking information on knowledge and experience, warnings when a product is inappropriate, the conditions for execution-only, staff training and record keeping; they apply six months after publication in all EU languages.
- GuidelinesPublishedESMA rulebook
AI summaryESMA's 2020 final report and guidelines (ESMA35-36-1946) on the MiFID II compliance function, updating the 2012 guidelines: they cover the function's responsibilities (risk assessment, monitoring, reporting and advisory duties), its organisation (effectiveness, independence, permanence, resources and proportionality, combination with other functions and outsourcing) and competent authorities' review of it.
- GuidelinesPublishedESMA rulebook
AI summaryESMA's original guidelines (ESMA35-43-620), applying from 3 January 2018, on the product governance obligations in Articles 16(3) and 24(2) MiFID II: how manufacturers identify a target market and distribution strategy, how distributors refine and review them, and issues common to both, with illustrative examples. ESMA has since issued revised guidelines.
- GuidelinesPublishedESMA rulebook
AI summaryESMA guidelines of May 2021 (ESMA50-164-4285) on outsourcing to cloud service providers by a wide range of firms, including fund managers and depositaries, CCPs, trade repositories and MiFID II investment firms and credit institutions providing investment services, covering governance and documentation, pre-outsourcing due diligence, key contract terms, information security, exit strategies, access and audit rights, sub-outsourcing, notifying authorities and supervision.
- GuidelinesPublishedESMA rulebook
AI summaryJoint EBA and ESMA guidelines of July 2021 (EBA/GL/2021/06, ESMA35-36-2319) on assessing the suitability of management body members and key function holders of credit institutions and investment firms, covering individual and collective suitability, time commitment, reputation, honesty and integrity, independence of mind, diversity, induction and training, and assessments by institutions and competent authorities.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document (ESMA35-43-349, final version 15 December 2023) on MiFID II investor protection topics, including best execution, suitability, call recording, inducements and research, costs and charges, client categorisation, third-country firms and product governance. It is no longer updated; Q&As from 2024 are in ESMA's Q&A tool.
Commentary
No law-firm commentary is linked to this provision yet.
393 more documents relate to MiFID II as a whole without naming an article.
UK counterpart
- DivergedExplicit reference · 90%
EU changes after exit: Directive (EU) 2022/2556 (from 17 Jan 2025).
- SYSC 4.1.1R General requirements
- SYSC 4.1.6R Business continuity
- SYSC 6.1.1R Adequate policy and procedures
- SYSC 8.1.1R General requirements
- SYSC 9.1.1AR General requirements
- SYSC 10.1.7R Managing conflicts
- SYSC 10A.1.1R Application
- SYSC 10A.1.6R Obligations for telephone and electronic communications
- SYSC 10A.1.7R Obligations for telephone and electronic communications
- SYSC 10A.1.8R Obligations for telephone and electronic communications
- SYSC 10A.1.11R Notification
- SYSC 10A.1.12G Notification
- SYSC 10A.1.13R Obligation for other communications
- SYSC 10A.1.14R Record-keeping
- COBS 3.8.2R Records
- COBS 9A.4.2G Record keeping: MiFID business and insurance-based investment products
- COBS 11.7A.3R Application
- CASS 6.1.6R Title transfer collateral arrangements
- CASS 6.2.1R Requirement to protect clients' safe custody assets
- CASS 7.10.16R Credit institutions and approved banks
- CASS 7.11.1R Title transfer collateral arrangements
- CASS 7.12.1R Requirement to protect client money
- PROD 1.3.1R General: Who? What?
- PROD 3.2.3R Product governance arrangements
- PROD 3.2.4R Product governance arrangements
- PROD 3.3.16R Target market and distribution strategy
- PROD 3.3.29G Post-sale review
- DivergedExplicit reference
EU changes after exit: Directive (EU) 2022/2556 (from 17 Jan 2025).
- PROD 3.2.16R Information disclosure to distributors
- PROD 3.2.19R Review of financial instruments
FCA Handbook references © FCA, used under the Open Government Licence v3.0. Rulestack is independent and not endorsed by the FCA.
Version history
- From 17 Jan 2025
- From 17 Sept 2014 to 17 Jan 2025
Each entry is a consolidated version of the act on EUR-Lex in which this provision appears. The text itself is on the official site.