The Directive 2004/39/EC, the Markets in Financial Instruments Directive (MiFID) that covers collective investment securities, investment securities, financial market instruments, and derivatives, was transposed to the Czech national law by Act No. 256/2004 Coll., On Trading in the Capital Market.
Besides strengthening the position and protection of an investor, the Directive broadens the scope of investment instruments that cannot be provided without a licence issued by the Czech National Bank.
Categorization of Clients
Basic protection of the client consists in an obligation to classify clients into different categories, specifically:
- Eligible counterparties
- Professional customers
- Non-professional customers (retail clients)
pursuant to criteria defined by law. Retail clients are entitled to the highest level of protection.
Suitability and Appropriateness Tests
The Directive has also introduced an obligation to perform certain tests before the provision of investment services:
- If the bank provides investment counselling or manages client’s assets, it is obliged to collect information about client’s knowledge and experience in the field of investing, as well as about client’s financial standing and investment goals, and assess whether a given investment service is suitable for the customer, i.e., whether it matches the client’s financial standing, investment goals, and expert knowledge and experience necessary for understanding the risks involved.
- If the bank decides that this is not the case, or fails to collect information necessary for the assessment, or such information is evidently incomplete, inaccurate or untruthful, it is obliged to reject to provide the service.
- If the bank provides other financial services, it is obliged to ask the client for information about client’s knowledge and experience in the field of investing, and assess whether a given investment service matches the client’s expert knowledge and experience.
- If the bank decides that this is not the case, it will notify the client about this fact.
- If the client refuses to give the information or fails to give it to a necessary extent, the bank will advise the client that it is not able to assess whether a given investment service matches the client’s expert knowledge and experience necessary for understanding the risks involved.
Detailed information about the MiFID Directive and other related documents can be found here (Only available in Czech).