MiFID II Update August 2017
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The document outlines the MiFID II regulations that impact financial services, aiming to enhance investor protection, streamline regulation across the EU, and boost market competition. It details key provisions including disclosure of costs, suitability assessments, product governance, and call recording, along with the applicability of these rules starting January 3, 2018. IRESS emphasizes the need for firms to understand their compliance requirements and adjust their processes accordingly.
MiFID II Update August 2017
- 1. iress.com MiFID II update August 2017
- 2. iress.com 2 IRESS is a supplier of software products and solutions for the financial services market. Whilst we seek to understand relevant changes to the regulations that will affect our clients businesses we do not purport to offer definitive advice or guidance as regards the meaning or interpretation of any new regulations. The interpretation of many MiFID II rules is still being clarified and there are many areas where a common understanding does not yet exist across the market. As such, any views and / or statements made within this presentation should not be relied upon and your own particular position should be checked with your Compliance Officer and / or Compliance Service provider. Important notice
- 3. iress.com 3 • What is MIFID II? • Why is it being introduced? • When will it come into effect? • Who does it apply to? • What are the core provisions? • What IRESS is doing? • What actions could you take now? Agenda
- 4. iress.com 4 What is MiFiD II MiFID is the framework of EU legislation for: • Investment intermediaries that provide services to clients around shares, units in collective investment schemes and derivatives (collectively known as ‘financial instruments’) and • The organised trading of financial instruments MiFID I was applied in the UK in 2007, but is now being revised to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection. If your business involves the distribution and trading of financial instruments, it is highly likely to be impacted
- 5. iress.com 5 Why is it being introduced? The legislation has several core objectives, including:- • Increased investor protection • Alignment of regulation across the EU in certain areas • Increased competition across the financial markets • Introduction of reinforced supervisory powers This session will focus on potential implications for financial advisers involved with selling and advising on ‘financial instruments’
- 6. iress.com 6 • If you were a MIFID I firm then MIFID II applies • If you are an ‘article 3’ MIFID exempt firm then beware as some the regulations will apply and the FCA also has to apply “analogous standards” in a number of other areas Who does it apply to?
- 7. iress.com 7 When will it come into effect? 3rd January 2018 The FCA has acknowledged that parts of the regulations are still being resolved but expects firms to take ‘reasonable steps to comply by the January deadline’.
- 8. iress.com 8 Independence • Definition of independence reviewed and slightly narrowed • “Comprehensive review” to be replaced by “Sufficiently diverse” • And, for example, you could become an “Independent Pensions Adviser” • Individual advisers can’t offer both independent and non-independent advice on MIFID products What are the core provisions? Permissions • Advising on / and arranging structured deposits will need regulatory permission • Notify the FCA to extend ‘Part 4A’ permissions Disclosure of costs & charges • Must provide an aggregated view of all fees & charges relating to the investment solution, i.e. including advice fees, any DFM fees and investment solution charges • Must provide both: o Ex-ante - pre-sale (probably based on a reasonable set of assumptions) o Ex-post - post-sale based on actual costs & charges (annually)
- 9. iress.com 9 Suitability (advised clients) • To be assessed when recommending to buy, sell or hold MIFID products • Issue suitability letter BEFORE a transaction is concluded (a concession exists for sale carried at a distance, e.g. telesales) What are the core provisions? Appropriateness (non-advised clients buying ‘complex’ products) • Checks to be made around client understanding and experience of the investment product sought • Evaluation to be made whether the investment product is “appropriate” • Must then decide whether to complete the sale or not 10% drop in clients’ portfolio value • Requires clients to be informed by their portfolio manager if the value of their portfolio has dropped by 10% or more within the reporting period • Portfolio values to be monitored on a daily basis (not more frequently) • Basis of calculation still to be clarified / defined
- 10. iress.com 10 Periodic reporting to clients • Portfolio managers send a report to clients at least quarterly (rather than every six months) • Online systems need to evidence that clients have access to periodic statements Call recording • MIFID firms will have to tape all telephone conversations (including those made on mobile devices) that relate to client transactions or which are intended to lead to a client transaction • MIFID exempt firms (article 3) have the option to manually record notes of such calls. • And the requirement is broader than just telephone calls with the client:- • Records must be kept of ALL communications relating to the placement of trades, e.g. emails, text messages, Skype calls and face-to-face conversations. • Internal telephone calls and conversations must also be recorded / noted What are the core provisions?
- 11. iress.com 11 What are the core provisions? Product Governance • Product manufacturers will have greater responsibility for ensuring that their products are distributed to the intended target market • To support this adviser firms must provide information on sales to manufacturers for each type of financial instrument it distributes to clients, e.g. o Types of clients buying the product o Sales outside of the target market o Summary of complaints received o Responses to client questionnaires o Details of firm-level processes and procedures for reviewing products that will be distributed to clients Knowledge & Competence • T&C for those providing information to clients as part of a transaction or MIFID related service. Conflicts of interest • Free research from Asset Managers will be banned • Additional onus on avoiding conflicts of interest and disclosing those that can’t be managed
- 12. iress.com 12 What IRESS is doing? MiFID II Provision XPLAN AO Independence n/a n/a Permissions n/a n/a Disclosure of costs & charges Suitability (advised clients) Appropriateness (non-advised clients) 10% drop in client portfolio value Periodic reporting to clients Call recording & manual record keeping manual record manual record Conflicts of interest n/a n/a Product governance Knowledge & competence n/a n/a The release(s) within which support for each provision will be delivered has still to be finalised, i.e. timings are affected by the uncertainty surround some of the regulations
- 13. iress.com 13 IRESS Product roadmaps: • XPLAN - 2.23 (July) and 2.24 (Sept) • Adviser Office – 12.1 (end October) As other requirements are clarified, further releases / interim updates may be issued What IRESS is doing?
- 14. iress.com 14 Ensure which provisions your firm will need to comply with: • Read the FCA documentation (CP14/43, CP16/19, CP16/29, PS17/5, PS17/14) • Speak to your Compliance Officer / Network Service supplier • Read the Compliance bulletins and trade press • Talk to your colleagues / advisers in other firms What action could you take now? Review your client propositions: • Should you continue distributing and advising upon MD products? • Can you take advantage of the change in definition of independence? Review your policies relating to: • Call recording • Potential inducements and conflicts of interest, e.g. around research materials • Appropriateness, i.e. prospects that fail the appropriateness test Apply to the FCA for structured deposits permissions
- 15. iress.com 15 What action could you take now? Review your operating processes around: • Identifying cases where your clients portfolios have dropped in value by > 10% • When suitability letters are produced • Producing suitability letters where clients are being advised to hold or sell their investment solutions • How aggregated investment solution costs & charges can be established and then disclosed to both prospects and clients • Evaluating new products before you start recommending them to your clients • Training staff that only provide information to clients Understand how technology can help: • Speak to your IRESS Account Manager • Make a note to watch our next webinar
- 16. iress.com Thank you M: 07920 135708 Chris.Pitt@iress.com Chris Pitt