Countdown to MiFID II

Some of the biggest changes to the regulations are coming in at the beginning of 2018 - are you ready?

What do you need to know about the MiFID II changes?

MiFID II, or to give it its full name - the second Markets in Financial Instruments Directive, aims to:

  • make financial markets more efficient and resilient
  • improve transparency of both equity and non-equity markets
  • strengthen investor protection and reinforce supervisory powers

Things to consider

Many people are still unsure about the effects MiFID II will have on their business and the specifics of what they need to know and do.

With that in mind, we’ve created a factsheet to help you understand the key things you need to consider, including an action plan to make sure you’re moving in the right direction.

Recognising the opportunities

By improving the management of risk through cost-effective technology solutions, there can be an increase in transparency, reporting standards and scalable processes for adviser firms:

Industry news

As the deadline for MiFID II approaches, read the latest news from across the industry.

FCA latest on Legal Entity Identifier (LEI)

Visit our industry changes page

Further information

Blog:

Keep calm, we have a plan – MiFID II

Key things you need to know about changes under MiFID and MiFIR

Documents:

MiFID II Factsheet

Improved outcomes

Improved outcomes

Implementing regulatory change in a way that delivers good outcomes for your business and your clients.

Lower business risk

Lower business risk

Helping you to ensure clients with similar goals receive consistent outcomes, mitigating any unwanted disparity.

Reduced cost

Reduced cost

Using scale to drive down the cost of investing.

Greater efficiency

Greater efficiency

Supporting you to service more clients with the same resource.

Key changes to our platforms

Find out about the specific changes we’re making to our platforms to support your business in preparation for MiFID II.

Discretionary portfolio statements and the 10% drop

DFMs and advisers with discretionary permissions must deliver quarterly client reporting. You must also tell clients of any depreciation of 10% (and subsequent 10% drops) within each reporting period.

For both Wrap and Elevate, a document which details the valuation drop (in relation to Investment Management Hub portfolios on Wrap and DFM portfolios on Elevate) will be generated in your client’s document library within their platform account and we’ll automatically let advisers/DFM’s know about the 10% drop and which clients are affected.

10% Leveraged Instrument

Your client needs to be informed when their investment in a MiFID II ‘leveraged instrument’ drops by 10% or more.   Our current interpretation of the regulation is that the vast majority of assets will not be defined as leveraged; however, the information provided by the Fund Manager via the new European MiFID Template (EMT) will determine this.

Client disclosure of costs and charges

MiFID II requires you to provide your clients with aggregated information about costs and charges. This includes transaction costs of trades and a breakdown of DFM fees.

Platforms hold the key to efficient reporting and you should expect reports to break down costs and charges into pounds and percentages, before and after sale.

For transaction costs, Standard Life will take all the relevant information from fund managers and present through a charges information document. We’ll do this after each transaction but also in the yearly statement.

We’ll also show the DFM fees through the same documents.

Transaction level detail for discretionary models will go into the contract notes.

Product governance and your target market

MiFID II compels fund managers to decide and clearly articulate the target market for their products. They will then monitor sales to ensure their products are being recommended to the right people. It naturally flows that it will become advisers’ responsibility to ensure their recommendations are aligned to this guidance.

As a result, advisers must be clear on their target clients and understand the appropriate products and distribution method for them.

Standard Life will bring together target market data from fund managers, as well as help provide the data required by fund managers to monitor sales.

Client Suitability

This is about formalising best practice for assessing and reporting on advice to hold a particular fund. The regulation creates a requirement to repeat this each year if your advice is ongoing. It’s worth considering whether you could improve your ‘know your client’ process. Or perhaps review how often you check a client’s attitude to risk and whether there are any specific trigger points (like at retirement).

Standard Life will provide easy access to the investment information advisers need to help to support suitability assessments.

Legal Entity Identifier and National Identifier

Does your firm trade in Exchange Traded Instruments (ETIs)?

These reportable investments include Exchange Traded Instruments, of which a variety can be traded on Standard Life platforms, including:

  • Equities
  • Gilts and Bonds
  • ETFs
  • Investment Trusts
  • Bonds

If the answer is yes, and your firm does trade in ETIs on behalf of clients, or you have clients invested in discretionary portfolios holding ETIs – you may be required to have Legal Entity Identifiers (LEIs) and National Identifiers (NIs) in place before a trade in an ETI can be processed on our platforms from 3 January 2018.

The requirement to provide LEIs and NIs does not apply to trading in funds.

When are LEIs and NIs required?

  • An NI is required when the client transacting in ETIs is an individual, including when these ETIs are held or within a discretionary portfolio.  For UK nationals, a National Insurance number (NINo) can be used as an NI, meaning the large majority of clients on our platforms have already provided a valid NI.
  • Where the client has foreign or dual nationality, the European Securities and Markets Authority (ESMA) has provided guidance on NI requirements.
  • An LEI is required when the client transacting in ETIs is a legal entity, such as firms, trusts, charities or other corporate bodies, including when these ETIs are held within a discretionary portfolio.
  • LEIs also required by firms with discretionary permissions trading in ETIs, with NIs also required for the investment decision makers within them. We will communicate separately to firms with discretionary permissions about their obligations.
  • When trading on our platforms there are no circumstances in which an advisory business (without discretionary permissions) needs an LEI for their own business, including where there clients hold and trade in ETIs.

How do I provide an NI or LEI?

Our platforms are being updated to enable advisers to provide and check the relevant identifiers.  Where clients are UK nationals, the existing National Insurance numbers provided will be pre-populated and this should be checked. The Nationality of all clients, including UK nationals, must be confirmed in the platform. We will communicate full details of this process in the coming weeks.

In the meantime, we recommend that advisers with significant numbers of clients that hold and trade in ETIs consider their preparations for January:

  • Downloading relevant platform reports (such as the Total Holdings Reports on Wrap and Elevate) to identify clients investing in ETIs.
  • Identifying clients that are legal entities holding ETIs that may require an LEI.  In this event it is likely that the entity will not already have an LEI and will need to apply for one from an authorised body (see below).  Advice firms may wish to apply and pay for an LEI on behalf of their clients, provided they have their agreement.
  • Referring to your firm’s own records to identify clients with foreign or dual nationality that cannot rely on pre-existing National Insurance numbers.

Where to apply for a LEI?

If you believe you need a LEI then both Bloomberg and the London Stock Exchange offer services:

The LEI application process may take a number of weeks, meaning firms should apply in advance, particularly if they anticipate trading early in 2018. Initial charges and annual maintenance costs apply.

Standard Life accepts no responsibility for the information contained in the websites referred to.

This is our current understanding of the regulations on 14 November 2017.

Blogs from Jenny Davidson

Keep calm, we have a plan – MiFID II

Key things you need to know about changes under MiFID and MiFIR

If you still have questions then please speak to your usual Standard Life contact, otherwise, contact us on 0345 272 6622, or email sales_support@standardlife.com. We’ll continue to update this page over the next few months to keep you up to date with the latest news and insight on MiFID II.