MiFID II – A client perspective.

The Markets in Financial Instruments Directive (MiFID) is the framework legislation for the provision of investment services and the operation of financial markets within the European Union (EU).

The original MiFID directive has been replaced by new legislation known collectively as MiFID II which came into force on 3rd January 2018. The changes in MiFID II are broadly designed to make markets more transparent, efficient and resilient, to take account of more recent technological developments, to strengthen investor protection and increase supervisory powers.

Below are the areas of the legislation where clients’ may experience differences in the services that we provide.

Best execution

Best execution refers to the duty of an investment services firm executing orders on behalf of clients to ensure the best execution possible for their orders. The current best execution regime has been made more prescriptive. In particular, there is now a requirement to take ‘all sufficient’ steps to obtain the best result for a client, rather than the current ‘all reasonable’ steps.

Our current systems of administration have been designed to take all sufficient steps to obtain the best result for a client.

Disclosure

More specific information will need to be disclosed about the type of advice provided, services provided, financial instruments recommended, investment strategies used and all costs and related charges. The costs must include information relating to both investment and ancillary services, the cost of the investment advice, the cost of manufacturing and managing the financial instrument and information on how the client can pay. Costs must be expressed as a percentage and as a cash amount.

Our current disclosure process largely meets the new requirements, so only minor additions are needed. You are likely to receive an increased amount of information from the contract providers relating to costs and charges.

Independent advice

The FCA intends to implement the MiFID II standard for providing independent advice to MiFID financial instruments, structured deposits and non-MiFID products such as insurance-based investments and personal pensions. The revised definition means that independent firms will have to assess a range of financial instruments that are sufficiently diverse (in relation to their type and provider), they can suitably meet their client’s objectives and are not limited to investments issued or provided by closely linked entities.

We will be remaining independent and will continue to research and assess the whole of market under the revised definition.

Suitability

MiFID II introduces a number of changes in relation to suitability. In particular the regulations see enhancements in the following areas:

  • Risk tolerance
  • Maintaining adequate and up to date information
  • Reliability of information
  • Switching investments
  • Bundled products or services
  • Unsuitability
  • Suitability reports
  • Periodic suitability assessments
  • Provision of information “in good time”
  • Reason for the suitability assessment

Our processes for assessing and monitoring suability are largely aligned to the new regulations, so again, clients will not see many changes in this area.

Conflicts of interest

There is a requirement to take all appropriate steps to prevent, as well as manage conflicts of interest. Where a conflict cannot be prevented or managed, it will need to be disclosed that arrangements are insufficient to protect client’s interests.

Where such conflicts exist, the relevant disclosure will be made.

Legal Entity Identifiers (LEIs)

MiFID II introduces a new section in the FCA handbook which requires transaction reports to be made to the FCA in relation to trades made in reportable financial instruments. Reportable financial instruments essentially are instruments that are tradable which includes:

  • Shares/listed securities
  • Exchange traded instruments (e.g. Exchange traded funds)
  • Venture capital trusts (VCTs)
  • Investment trusts
  • Warrants
  • Gilts
  • Corporate bonds
  • Structured products

Where advising an entity that is eligible for a LEI such as Trusts (excluding bare trusts), Charities and Companies in relation to a reportable instrument, the entity must have obtained an LEI in order to transact these instruments. LEIs are not required where Units Trust / OEICs and insurance-based contracts are purchased and sold.

If an LEI is required in respect of an above mentioned legal entity, we can provide assistance in the application process.

 

 

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January 24, 2018 Post by
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