Amendments to the Benchmarks Regulation, MiFIDII and InvestmentAdvising Rules

Introduction

The European Union has been updating its financialmarket framework to strengthen investor protection, improve market integrity and adapt to new technological realities. The most notable recent changes concern the Benchmark Regulation (BMR), the Markets in Financial Instruments DirectiveII (MiFIDII) and the rules governing the provision of investment advice. This page summarises the key amendments, explains why they matter and outlines the practical steps that market participants should take.

1. Benchmark Regulation (BMR) Recent Amendments

1.1 Scope extension

Regulation (EU) 2024/1027 widens the definition of benchmark to include:

• Cryptobased benchmarks derived from onchain data.
• Benchmarks used for sustainabilityrelated disclosures under the NonFinancial Reporting Directive.

1.2 Governance and Transparency

Providers must now appoint a dedicated Benchmark Oversight Committee (BOC) with at least two independent members. Annual reports must disclose:

• Methodology changes and their rationale.
• Datasource quality controls.
• Impact assessments for ESGrelated benchmarks.

1.3 Liability and Enforcement

Penalties have increased: up to 15million or 2% of annual turnover for serious breaches. National competent authorities (NCAs) may also impose temporary bans on the use of noncompliant benchmarks.

2. MiFIDII Key Amendments (20242025 Review)

2.1 Product Governance

The European Commissions MiFIDII Review Package adds a mandatory ProductSpecific Target Market (PSTM) analysis for all packaged retail and professional products. Providers must document:

• Investor objectives, risk tolerance and knowledge assessment.
• Why the product is unsuitable for any segment not explicitly targeted.

2.2 Transaction Reporting Enhancements

Effective 1January2025, transaction reports must include:

• Identifier of the underlying benchmark (where applicable).
• Whether the trade involved a bestexecution algorithm that uses AI.
• Explicit indication of the client classification (retail, professional, eligiblecounterparty).

2.3 Algorithmic Trading Controls

New thresholds for highfrequency trading (HFT) are set at 1ms latency. Firms employing HFT must:

• Maintain a killswitch capable of halting all automated activity within 500ms of a fault detection.
• Submit a yearly algorithmic riskassessment to the NCA.

3. Advice on Investments Revised Conduct of Business Rules

3.1 Suitability & Appropriateness Recalibration

From 1July2024, the suitability test must incorporate a digitalasset exposure component. Advisors need to ask clients about:

• Current holdings of cryptotokens, stablecoins or tokenised securities.
• Comfort level with algorithmdriven portfolio rebalancing.

3.2 Transparency of Fees

All fees, including indirect costs such as dataprovider charges and benchmark licensing fees, must be disclosed in a single, standardised table. The table must be provided in a digital format that is machinereadable (e.g., JSON or XML).

3.3 Conflicts of Interest

New rules require that any material relationship with a benchmark administrator, datavendor or cryptoexchange be disclosed in the ClientFacing Disclosure Document (CFDD). Failure to disclose may lead to a revocation of the firms advisory licence.

4. Practical Steps for Firms

1. Gap Analysis: Conduct a crossfunctional review of existing policies against the new BMR, MiFIDII and advisoryrule checklists.
2. Governance Updates: Appoint independent benchmark oversight members and update productgovernance committees to reflect the PSTM requirement.
3. Technology Enhancements: Upgrade transactionreporting platforms to capture the additional data fields; implement a realtime killswitch for algorithmic systems.
4. Training: Provide mandatory elearning on cryptoasset exposure, ESGbenchmark methodology and the new feedisclosure format.
5. Documentation: Revise clientonboarding questionnaires, CFDDs and internal audit trails to include the new disclosures.
6. Regulatory Reporting: Test the endtoend flow of data to the relevant NCAs reporting gateway before the 2025 deadline.

Conclusion

The EUs recent amendments to the Benchmark Regulation, MiFIDII and investmentadvice rules represent a decisive move toward greater transparency, stronger investor protection and an acknowledgement of emerging markets such as digital assets and ESG benchmarks. While the compliance burden will increase, firms that adopt a proactive, technologyenabled approach will be better positioned to compete in a market that prizes clarity and trust.

For further information, consult the official texts on EURLEX or contact your national competent authority.