Mintos Insight August 2023: Regulatory watch

Welcome back to another edition of Mintos Insight. Our goal is to provide our investors with the most comprehensive and useful information to make well-informed decisions regarding their investments.

This month, we examine regulatory changes and their potential impacts on global financial markets.

MiFID II: An era of transparency and investor protection

The Markets in Financial Instruments Directive II (MiFID II) was implemented in January 2018, this legislative framework was instituted with a clear aim: to bolster market transparency and fortify investor protections.

In line with these aims, MiFID II is primarily designed to protect two types of investors: retail and professional.

  • Retail investors are individuals or entities who are not considered experts in financial matters and require a higher level of protection, while professional investors are experienced individuals or entities with sufficient knowledge and expertise in financial markets, thus affording them a lower level of regulatory safeguards.

Retail investors stand to benefit the most from these regulations. They are provided with greater transparency about the costs and charges associated with their investments, and investment firms are obliged to act in their best interests, ensuring that products or services recommended are appropriate for their needs and risk tolerance.

MiFID II extends its regulatory framework beyond retail and professional investors, encapsulating a broad spectrum of entities within the financial sector, including investment firms, banks, stock exchanges, data reporting service providers, and other intermediaries in the securities market, thereby fostering a more accountable and responsible financial environment.1

MiFID II builds upon its predecessor, MiFID I, which was introduced in 2007 with the primary objective of harmonizing financial market regulations across the EU. While MiFID I was a crucial step towards creating a unified financial services market, it had certain limitations that needed to be addressed.

One of the key areas where MiFID I fell short was in ensuring transparency and investor safeguards. Market participants, regulators, and financial institutions identified gaps in the regulations, particularly in segments such as over-the-counter (OTC) trading, fixed-income assets, and currencies.2

  • Over-the-counter (OTC) trading refers to the decentralized marketplace where financial instruments, such as stocks, bonds, commodities, and currencies, are traded directly between two parties without the oversight of a centralized exchange.3

For instance, there was a lack of pre- and post-trade transparency in OTC markets, making it difficult for investors to assess the fairness of transactions. Additionally, the rise of new trading venues and strategies, such as algorithmic and high-frequency trading, were not adequately covered under MiFID I. These limitations, combined with the lessons learned from the 2008 financial crisis, necessitated a more comprehensive regulatory framework. MiFID II was introduced in 2018 to address these shortcomings and strengthen the EU’s financial market regulations.4

MiFID II: Resolving the shortcomings of MiFID I

The implementation of MiFID II in 2018 marked a significant regulatory overhaul of the EU’s financial markets. One of the notable enhancements introduced by MiFID II was the extension of transparency requirements to various asset classes beyond equities, including bonds, structured finance products, emission allowances, and derivatives.5

This extension enabled investors and regulators to gain a better understanding of market dynamics across these areas:

  • Bonds: Prior to MiFID II, the bond market was largely opaque, with prices often agreed upon privately between parties. Under MiFID II, pre-trade transparency requirements necessitate the disclosure of the bid and offer prices, and the depth of trading interests at those prices for bonds to the public. This allows potential investors to have an idea of the market price before they execute trades.6
  • Structured finance products: These are complex investments built around pooled assets—like mortgages or corporate debt. Prior to MiFID II, these products were typically traded with little disclosure, making it challenging for investors to accurately gauge risk. MiFID II extends transparency requirements to these products, necessitating more detail about the underlying assets, trading volumes, and prices, thereby helping investors to make more informed decisions.7
  • Emission allowances: These are permits that allow a company to emit a certain amount of greenhouse gasses. MiFID II requires transparency for the trading of emission allowances, which involves the disclosure of the volume and price of trades. This ensures that companies and investors can more accurately assess the market value of these allowances, promoting fair and effective pricing.8
  • Derivatives: Derivatives are financial contracts that derive their value from an underlying asset. Before MiFID II, trading in derivatives often took place OTC, privately between parties. MiFID II mandates the reporting of both OTC and exchange-traded derivatives trades to trade repositories, which collect and maintain records of derivatives contracts. This leads to a more transparent market by revealing the price, volume, and type of derivatives being traded.9

Empowering investors through MIFID II

MiFID II also placed a greater emphasis on investor protection compared to MIFID I. It implemented stricter rules regarding product governance and suitability, compelling firms to ensure that their financial products are designed to meet the specific needs of their target customers.10

Prior to the implementation of MiFID II, the complexity and diversity of investment-related fees and charges made it challenging for investors to fully appreciate the complete cost structure associated with their investments. They were unable to effectively compare various investment options and determine which products offered the best value for their money. Without access to this information, they could not accurately assess the risk and potential returns associated with different investment services, which consequently limited their ability to make well-informed investment decisions.11

The greater level of transparency ushered in by MiFID II has essentially reshaped this dynamic. Now, with more detailed and standardized information about costs and charges readily available, investors are better equipped to compare and contrast different investment services on a like-for-like basis. They can readily analyze and understand the cost implications of their prospective investments, thus mitigating any potential financial risks or pitfalls.12

By introducing these comprehensive rules and regulations, MiFID II aimed to rectify the deficiencies of MiFID I and establish financial markets that are more transparent, fair, and closely monitored.

Impact of MiFID II on alternative lending

MiFID II has had significant implications on alternative lending, particularly within the scope of alternative finance platforms. These changes have brought both challenges and opportunities to the alternative lending industry.

One of the impacts of MiFID II on alternative lending is the introduction of stricter regulations for platforms regarding research payments, data security, monitoring, and marketing regulations.13

To comply with these rules, alternative lenders are required to record, monitor, and archive communications, as well as ensure compliance with marketing and investment regulations, including the inclusion of disclaimers in digital communications.

MiFID II has also had implications on the use of Artificial Intelligence (AI) and external data in the alternative lending industry. As traditional buy-side firms reduce reliance on investment banks for research services, this has created opportunities for the innovative use of AI and alternative data types, such as news media and credit card transactions, for predictive purposes. As a result, alternative lenders that can leverage these new data sources and integrate AI into their investment processes may gain a competitive advantage.14

Also, the enhanced transparency and investor protection measures mandated by MiFID II have required changes to business models, emphasizing product suitability and compliance, which could impact the nature and scope of services offered by alternative lending platforms.15

While MiFID II has brought about significant changes and challenges for the alternative lending industry, it also offers new opportunities for firms to innovate and differentiate themselves in the market. This dynamic regulatory environment highlights the importance for alternative lenders to stay agile and continuously adapt to evolving regulations and market trends.

Enhancing investor protection: MiFID II compliance on Mintos

Investing in a regulated environment on Mintos brings considerable advantages, especially concerning the protection of investors in alignment with the principles of MiFID II.

Mintos, operating as an authorized investment firm under this regulatory framework, ensures that investors’ assets are subject to stringent protection measures.

Clear separation of funds and financial instruments

The safeguarding of investors’ assets is of paramount importance because unregulated service providers lack the obligation to maintain a clear separation between their own assets and those of their investors. This separation mitigates potential risks and safeguards investors’ interests, even in the event of operational challenges.

MiFID II mandates a clear separation between investors’ funds and Mintos’ assets. Investors’ funds are held in safeguarding accounts in central banks, credit institutions, or qualifying money market funds licensed in the EU, ensuring these funds are solely utilized for executing investor orders or covering necessary fees and charges.

Investor compensation scheme

To further safeguard our investors, Mintos is a member of the Latvian investor protection scheme, established in accordance with Directive 97/9/EC.

This scheme provides compensation to investors in the unlikely event of Mintos failing to return financial instruments or funds due to fraud, administrative malpractice, or business insolvency.

While this scheme offers valuable protection, it is important to note that it does not safeguard against investment risks inherent in the underlying loans, such as borrower defaults.

Suitable and appropriate product offering

We place great importance on ensuring that investors make well-informed decisions aligned with their financial situation and risk appetite.

To achieve this, we conduct an assessment of investors’ individual circumstances, including their financial capacity, knowledge, and investment goals. By understanding each investor’s profile, we can offer investment products and services that suit their expectations and risk tolerance.

Transparency through information disclosure

We provide clear, consumer-friendly information about our investment products through approved base prospectuses and Key Information Documents (KIDs).

Mintos Activity: July 2023

The month of July has shown promising growth on Mintos. Total investments saw a significant increase of €90.8 million worth of Notes funded, and interest earned by investors in July climbed to €4.1 million.

The average interest rate for July stood at 12.7%, translating to an annualized average net return of 10.1% (YTD 5.8%). The cumulative interest earned by investors on Mintos has now reached €242.2 million, and the total assets under administration are now €588.3.

Senior Partnership Executive Lukas Alijosius adds, “Investments in July exceeded €90 million thanks to an extra day in the month, as the daily investment amount remained virtually unchanged since the largest part of the overdue payments were resolved back in spring.” The availability of Notes for investment in EUR has also remained flat at €88 million as compared to the end of June, “Sustained Notes supply by lending companies, accompanied by consistent investor demand, maintained the average interest rate for investments in EUR-denominated Notes at 12.7%.”

If you’d like to read any previous Mintos Insight publications, you can find them on our Mintos Insight library. Or, if you would like to learn more about investing, we recommend exploring the Mintos Investor Academy.


This is a marketing communication and in no way should be viewed as investment research, advice, or recommendation to invest. There is no guarantee to get back the invested amount. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.

1 Investment services and regulated markets. (2023, June 29). Retrieved from (Accessed July 2023)

2 European Commission – Have your say. (n.d.). Retrieved from (Accessed July 2023)

3 Jackson, A. L. (2023, March 17). What Is The OTC Market? Retrieved from

4 Recital | European Securities and Markets Authority. (n.d.). Retrieved from

5 FAQs on MiFID II – Transitional Transparency Calculations (2018, August 06). Retrieved from (Accessed July 2023)

6 Review of Bond Market Transparency Under MIFID II. (2020) Retrieved from (Accessed July 2023)

7 EUR-Lex – 32014L0065 – EN – EUR-Lex. (n.d.). Retrieved from

8 Preliminary report

Emission Allowances and derivatives thereof. (2021, November 15) Retrieved from (Accessed July 2023)

9 ibid.

10 MiFID II und MiFIR. (n.d.). Retrieved from (Accessed July 2023)

11 Cost transparency – Costs and charges disclosure: a paper tiger or an important step towards more clarity for investors? (n.d.). Retrieved from

12 ibid.

13 EUR-Lex – 32014L0065 – EN – EUR-Lex. (n.d.). Retrieved from

14 Artificial intelligence in EU securities markets. (2023, February 1) Retrieved from (Accessed July 2023)

15 Guidelines on certain aspects of the MiFID II suitability requirements. (2023, April 3) Retrieved from (Accessed July 2023)


Have something to share?

Ask questions, share your thoughts, and discuss with other investors in our Community.