Changes in the organizational models and in the labour demand and employment relationships in the banking sector due to

digital-isation and the EU Directive MiFID II (by Lucia Kováčová) 2.2.1. The Impact of new technologies on the financial sector

The Markets in Financial Instruments directive (MiFID II) has brought several substantial structural changes in the internal control and governance of the EU financial sector with the purpose to foster transparency (mainly in the price for-mation processes), tackle conflict of interest in the investment advice and, thus, to enhance investor protection (Lannoo, 2018). The investment firms in the EU are now supposed to follow a new set of provisions as a response to the low trust in financial markets caused by the financial crisis. According to Cartei (2017), the investment firms and specifically financial intermediaries are, as a re-sult of the new MiFID II regulation, required to consider their clients’ interests and needs more attentively, and place them in the centre of the whole procedure of financial product approval. In context of the digital transformation and in-creasing demands for more transparent process of product approval in the fi-nancial businesses, the MiFID II regulation requires the investment firms to use different technological solutions to meet novel behaviours of clients and foster transparency by managing data flow more effectively at every stage of the

customer service provision. New digital requirements are closely intertwined with new skill requirements and the role of investment firms’ personnel is grad-ually changing due to new forms of customer relations and new types of services (Kotarba, 2016). This chapter serves to present and analyse the MiFID II regu-lation in the context of the recent trends in the digitalisation of the financial markets that invoke changes in the internal organisational structures within the financial institutions and skill management.

2.2.2. Implications of digitalisation for new organisational structures The MiFID II regulation addresses the contemporary trends in the financial sec-tor, mainly the digitalisation of banking and investment services such as intro-ducing novel and innovative communication channels, or a variety of services provided by the investment firms. As stipulated by Cartei (2017), the role of IT services has become more important due to a range of requirements the MiFID II regulation recently imposed.

By utilising technological solutions and advanced data analytics, the regulation aims at enhancing the protection of investors. In order to address the clients’

needs and interests more efficiently, the MiFID II regulation imposes a set of new provisions. The Directive 2004/39/EC involves regulation of data provid-ers (including provisions on data gathering, mining, storing or sharing), new rules on algorithm trading, more detailed reporting and other settings with the purpose to enhance pre- and post-trade price transparency, make the whole product ap-proval process more effective and prompter and, as a result, to increase the in-vestor protection (Lannoo, 2017). In other words, the purpose of the regulation is to make the investor better-informed and, therefore, to ensure that the clients are provided with the independent advice and are offered appropriate products.

At the same time, the newly adopted provisions are supposed to foster the in-formation flow in the whole product approval process and make it seamless.

They require the financial institutions to invest in introducing technological so-lutions and digital infrastructure and, thus, to interact with the Fintech commu-nity more frequently than before. Banking clients call for more independence and self-sufficiency in the financial world. Regarding this, Ring (2018) points out that investment firms now tend to attract clients by allowing them to make fi-nancial decisions themselves via web-based platforms accompanied with online support and guidance. These new behavioural patterns have been significantly changing customer relations and the role of financial intermediaries. Novelties in customer relations are manifold: trends in clients´ behaviours show inclina-tions to eco-friendly soluinclina-tions, clients want to be able and equipped to browse through financial products and evaluate them themselves, to keep relationships

with multiple financial institutions and demand higher responsibility from the financial institutions (Kotarba, 2016).

As a result of the technological trends in the financial sector and the MiFID II regulation, the investment firms need to embrace 1) changes in the internal struc-ture and control; 2) new relations with external entities, mainly those coming from the Tech community. Particularly, investment firms need to introduce broader cooperation between different departments such as Finance and Wealth Department, Risk Management and IT departments (Cartei, 2017). The invest-ment companies must impleinvest-ment costly IT infrastructures and establish internal processes for regulatory reporting and data flow (Prorokowski, 2015). Organisa-tional changes invoked by the MiFID II regulation are not only related to changes in the internal structure but also cooperation with external bodies, mainly the Fintech companies providing IT solutions. The Fintech companies have been recently penetrating the market with financial instruments extensively, nevertheless, as Kotarba (2016) specifies, the market with financial instruments is nowadays a highly regulated business area which prevents Fintech companies (as non-licensed entities) from taking over the market.

Another key organisational change imposed by the MiFID II is that the invest-ment companies are now required to invest in their own research (as an ancillary service) and adopt changes in the way they pay their finance analysts. The invest-ment firms need to create a separate research payinvest-ment account to hold the pay-ments made by their clients for funding research or to cover costs for research themselves. Regarding this, there might be a difference between how smaller asset managers and larger investment firms can deal with this new provision (Lannoo, 2018).

2.2.3. Changing skill demands in the financial industry

The organisational adjustments in the system of internal control and governance of the financial institutions invoked by the MiFID II regulation and development in technologies further require enhancing skills of their employees. The MiFID II involves several provisions on skills and competences of the investment firms’

personnel. These provisions are included mainly in Article 24 (General Principles and Information to clients) and Article 25 (Assessment of suitability and appro-priateness and reporting to clients). These two articles stipulate main principles under which the investment firms should operate in order to meet their clients’

needs when providing them with financial services. To be more specific, the in-vestment firms are obliged to gather necessary information about their clients and his/her skills and knowledge in the investment field, offer services and fi-nancial instruments only if they are in clients’ interest, to ensure that all infor-mation is fair, clear and not misleading, as well as other provisions that enhance

protection of clients. Importantly, the investment firms must inform their clients if the advice provided on an independent basis and whether it is based on a broad or more restricted analysis of different financial instruments.

According to the Art. 25, § 9, of the Directive 2014/65/EU of the European Parliament and of the Council of May 2014 on markets in financial instruments, the European Securities and Market Authority (hereinafter ESMA) was required to develop the guidelines for the EU Member States to ensure that investment firms giving investment advice and providing information about financial instru-ments, investment services or ancillary services, obtain sufficient knowledge and skills and are able to fulfil their obligations under above-mentioned Arts. 24 and 25. On the request of the National Competence Authorities, the investment firms must be able to demonstrate that they are able to perform services meeting all the criteria.

The ESMA adopted Guidelines for the assessment of knowledge and compe-tence (¹) which are supposed to set standards in qualification and work experi-ence in providing with financial services and advice. They also require a proper application of knowledge and competence that are adequate to the complexity of the services provided by the investment firms. The ESMA Guidelines deal with the different types of criteria and requirements on personnel’s abilities, namely requirements on business ethics and standards, minimum formal educa-tion requirements, criteria to be met by qualificaeduca-tion, requirements on continu-ous professional development, requirements on an internal and external review of appropriate qualification and others. These Guidelines should also lead to the convergence in the quality of the services across the EU states (²).

The Assessment of implementation in EU member states if MiFID II requirements on knowledge and competence examining how EU Member States implement ESMA standards on the national level shows that there are significant divergencies among states in terms of how particular criteria for qualifications, training or internal/external reviews are applied (Zunzunegui & Corbal, 2018). As the au-thors of the report further state, such ambiguous criteria causing divergencies among the Member States might be troublesome especially for cross-border firms and in matters of re-allocation of personnel.

Zunzunegui & Corbal (2018) argue that these differences in how the EU mem-ber states implement the Guidelines 2015/1886 are caused by a lack of specifi-cation of requirements, particularly a lack of reference to EU recommendations on qualifications frameworks for vocational education and training. For instance, even a sole definition of ‘qualification’ is not consistent with the definition of the European Qualification Framework. Also, the Guidelines consider different op-tions for implementation of the requirements. As a result of such ambiguity and (¹) ESMA, Guidelines for the assessment of knowledge and competence, 2017. See also ESMA, Final Report. Guidelines for the assessment of knowledge and competence, 2015, ESMA/2015/1886.

(²) The Guidelines ESMA/2015/1886 came into effect in January 2017.

broader definitions of requirements, the Member States implement the Guide-lines, in very different ways.

Digital skills in the financial industry have been becoming more crucial for fi-nancial mediation and overall banking services since the methods of work are constantly changing and adapting to clients’ demands and new behavioural pat-terns. According to the JRC report on computerisation in the financial sector (Bisello, Peruffo, Fernándéz-Macías & Rinaldi, 2019), while the social interaction with clients as a part of work of investment firms’ personnel has been on a de-clining trend, there is an increasing trend in standardisation of methods of work and computer use in the financial mediation. In other words, while the share of work the clerks spend interacting directly with clients has declined, the use of financial algorithms and overall digital solution in the service provisions has in-creased.

Frey and Osborne (2017) specify that as the prices of computing are declining, there is an increasing need for cognitive and problem-solving skills. Additionally, and very importantly, certain tasks (previously performed by the financial inter-mediaries) in the financial industry are taken over by algorithms as they may cess a substantial volume of information necessary for decision-making pro-cesses in the financial businesses (Frey & Osborne, 2017).

2.3. Challenges and opportunities for the job quality of banking