MiFID II (Markets in Financial Instruments Directive II) is the EU regulatory framework that governs investment firms, trading venues, and financial advisers across all 27 EU member states. If you're investing with a regulated EU broker, MiFID II is the law protecting you. Here's what it actually means in practice.

What MiFID II requires of brokers

Every investment firm operating in the EU must be authorised and supervised under MiFID II by a national competent authority (BaFin, AMF, CySEC, etc.). Key requirements: Client fund segregation — your money must be kept separate from the firm's own money. Best execution — the broker must demonstrate it executes your orders at the best available price. Conflict of interest management — brokers must disclose and manage situations where their interests conflict with yours. Suitability and appropriateness — advisers must assess whether products are suitable for your knowledge and experience. Transparent reporting — you must receive clear information about costs and charges before any transaction.

The passporting system

A broker authorised in any EU member state can 'passport' its services across all 27 EU countries without needing separate authorisation in each. This is why CySEC-authorised brokers (Cyprus) can legally operate in Germany, France, Portugal, etc.

The passporting system means you don't need a broker based in your home country — any EU-authorised broker can serve you. However, your primary regulatory protection comes from the broker's 'home' regulator.

What MiFID II does NOT cover

MiFID II does not protect you from: Market risk (your investments can still fall in value), broker insolvency beyond the investor compensation scheme limit (typically €20,000), products not covered by MiFID II (some crypto assets, insurance products). Cryptocurrency exchanges operate under MiCA (Markets in Crypto Assets regulation, 2024) — a separate but related EU framework.

How to verify your broker is MiFID II compliant

Go to ESMA's register or your national regulator's database. Search the broker's name or registration number. Verify the authorisation is active (not suspended or cancelled). Check which services they're authorised for (investment advice, execution-only, etc.). Keep a record of your broker's registration number for your own records.

Frequently Asked Questions

What happens to my money if my EU broker goes bankrupt? +
Client funds must be held in segregated accounts, separate from the broker's own money. In a liquidation, client assets are returned first. National investor compensation schemes provide additional coverage up to €20,000 (or up to €85,000 under the UK FSCS for FCA-regulated brokers).
Is CySEC regulation as strong as BaFin or FCA? +
CySEC (Cyprus) is a full EU member and MiFID II supervisor. Its regulatory standards are equivalent on paper. In practice, BaFin (Germany) and the FCA (UK) are considered the strictest and most actively enforced. All three provide the core MiFID II protections.