6. Investor Protection

The chapter analyses the major changes occurred in investor protection, which is one of the broader aims of the whole of MiFID legislation. In particular, we focus on two disruptive novelties: first, the so-called know your merchandise rule, entailing that investment firms identify a ‘target market of end clients’; second, the overarching principle that they must act ‘in the best interest of the client’, including so-called ‘tied agents’ when providing investment advice. The heavily-impacting rules on inducements—which independent advisors are almost completely banned from receiving—are also discussed. In addition to this, we review the criteria determining the categorisation of both products (complex vs. non-complex) and clients (retail, professional, eligible counterparties). Besides, we show the content and the purpose of the suitability and appropriateness tests, discussing which conditions allow not to administer the latter. Also, the strengthening of investor protection is read in the light of product governance and intervention, which are critical to prevent wrongly-designed investment decisions from backfiring.