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MiFID II: the countdown is on

MiFID II/MiFIR’s implementation date for Member States, pushed back in 2016 to allow building IT systems to enable enforcement of the new package, is 3rd January 2018. Between now and the implementation date, a number of technical details (Regulatory Technical Standards) and opinions are still to be provided, particularly about the handling of costs and charges.

Elisabeth RaissonAll changes introduced by MiFID II aim at ensuring "more transparency for better investor protection". However, the impact on the players of the requirements of MiFID II depends heavily on their function within the investment industry. All actors, including investment firms and management companies, are required to review their governance policies, employee skills evaluation measures, conflict of interest management provisions and data recording measures

Some parts of MiFID regulations will affect the sell-side in particular, such as trade requirements and the emergence of new platforms, better execution regulations and pre- and post-trade transparency. Conversely, the arrangements on product governance and new requirements relating to distribution and research, and associated fees, will have a major impact on the buy-side.

Sell-side players have to pay particular attention to areas such as: transaction reporting, costs and charges transparency, and customer alerts in the event of variations in portfolios.

CACEIS actively encourages its sellside clients to ensure they comply with the regulatory requirements. CACEIS relationship managers maybe of assistance in this respect.

TRANSACTION REPORTING

The scope of the obligation to report transactions under MiFID I has been extended under MiFID II, as a result of the enlarged scope of financial instruments as well as the information to be provided for each transaction. While the future reporting fields are known, further clarification is still to be provided on the scope of reportable corporate actions, portfolio transfers and the identification of natural persons. CACEIS is taking part in the industry's drive to generate its own transaction report (execution, and reception and transmission of orders) by 3rd January 2018, through an Authorised Reporting Mechanism (ARM). 

Some European regulators have signalled that management companies will not be subject to transaction reporting under MiFID II, provided that they are authorised to manage UCITS or AIFs. As national transpositions may vary, clients are advised to check their status with their own regulator.

INFORMATION ON COSTS AND CHARGES

Investment firms are required to provide information relating to the cost of investment and ancillary services, as well as of the underlying financial instruments. This is based on the information, where applicable, provided by the financial instrument provider. This requirement also applies to management companies whenever they provide investment advisory and discretionary management services. 

The information shall be provided in amount and in percentage, on a generic ex ante and actual ex post basis. 

CACEIS takes part in the industry initiative to pair the requirements of MiFID II with those of PRIIPs, in the aim of providing a table of costs and charges that is compliant and understandable for the client. 

Investment firms providing a portfolio management service are required to inform their clients if the overall value of their portfolio has fallen by 10% (and thereafter at multiples of 10%). In the same way, investment firms that hold a retail client account that includes positions in leveraged financial instruments must inform their clients where the initial value of each instrument depreciates by 10%.

Management companies must specifically define research governance in the following areas: client invoicing and ex ante and ex post transparency, expenses based on the activity, forecast annual budget and annual budget used.