On 16th February 16 2018 the new Markets in Financial Instruments Act was promulgated and entered into force (State Gazette, issue No. 15 of 2018). After a considerable delay in both the deadline for transposition (3 July 2017) and the deadline for entry into force of the transposed provisions (3 January 2018), which also led to notification to the European Commission, the main task of the new MFIA is to introduce in the Bulgarian legislation the requirements of Directive 2014/65 / EU (the so-called MiFID II).
The ambitious goal of the legislator (beyond the obvious obligation to implement MiFID II) is to overcome long-standing problems on the Bulgarian capital markets such as insufficient liquidity, insufficient transparency of the market for non-equity financial instruments, lack of sufficient financial instruments and companies for investment, the lack of sufficient financial instruments to attract large institutional investors, the withdrawal of foreign investors after 2008, insufficient trust in the financial markets in Bulgaria, efficiency of financial supervision, etc.
The overall approach to implementing MiFID II is to reproduce the provisions of the Directive without any substantial changes that seem reasonable in the current situation. With regard to these MiFID II requirements, the transposition of which is in the discretion of the Member States, it is worth noting the Bulgarian legislator's refusal to use the option under Article 4 (1) of MiFID II, which allowed Member States to include in the definition of investment firm establishments which are no legal entities, provided that their legal status ensures a level of protection of the interests of third parties equivalent to that which provide legal entities and if they are subject to equivalent requirements appropriate to the form in question. Bulgaria did not take avail of the option and left the possibility for only limited liability companies or joint stock companies to be licensed as investment firms, as is the case with the current regime. The legislator's approach seems justified in view of the nature of the investment services and activities and the need for significant financial resources to which establishments other than limited liability companies and joint stock companies seem to have no capacity to respond. The provision of the possibility to separate individuals and / or civil societies to perform investment activities would hardly lead to the sought increase in trust in the Bulgarian capital market.
It is also worth mentioning the requirement to establish a branch in Bulgaria and its licensing by the Financial Supervision Commission. MiFID II has allowed Member States to require a third party company that intends to provide investment services or to carry out investment activities with or without ancillary services on its territory to retail or professional clients within the meaning of Section II of Annex II to MiFID II, to establish a branch. For Member States that do not benefit from this option, the third countries regime under Regulation (EU) 600/2014 (known as MiFIR) applies and in the case of retail services. In order to ensure better investor protection and more reliable supervision mechanisms over the investment firms activity, Bulgaria has decided to take advantage of the option and introduce a requirement for the establishment of a branch and its licensing by the FSC. The legislator's approach definitely finds support both in the nature of the Bulgarian capital market and in the continuity with the current regime under the already repealed MFIA.
As for MiFIR, which was directly applicable as of January 3, 2018 without the need for transposition, the delay in the adoption of the MFIA created a period of about a month and a half in which MiFIR was applied but MiFID II having not been transposed.
In view of the increased requirements towards supervised entities, it is important to note that the legislator provided a three-month deadline (i.e. until 16 May 2018) to investment firms, banks providing investment services and performing investment activities, regulated markets and market operators to bring their business into line with the requirements of the MFIA.