MiFID II will impact a range of areas in your and our business with some consequences for clients. We’ve compiled a list below which is followed by a series of articles. This list is by no means exhaustive, check back here for regular updates.
Key areas include:
- Transaction reporting – Client Identifiers
Information to Clients
Costs and Charges
Transaction reporting - Client Identifiers
To facilitate market supervision all transactions undertaken in securities transacted on a recognised market will have to identify the account holder and the individual / firm making the decision. This requirement will apply to all such securities including Exchange Traded Funds and Investment Trusts but not to authorised Collective Investment Schemes such as those managed by 7IM.
This development is intended to enable the regulator to have a greater ability to identify instances of market abuse which, if successful, will benefit all market participants.
Read the Transaction Reporting chapter below for more detail.
Information to clients - costs & charges
MiFID II is expected to require an increased level of information on costs and charges to be provided to retail customers. Our periodic reporting includes details of the costs and charges associated with a client’s account. We will continue to look for ways to improve our clients understanding of all the costs and charges impacting their investment on an annual basis. At present some clarity is required on the nature and format of reports and we are working closely with relevant trade associations in this regard.
Periodic portfolio reporting (including valuations) will move from the current bi-annually (in most cases) to quarterly. There is also a new requirement to communicate to clients if their portfolio’s value falls by 10% over a single reporting period. The specific requirements for this are still to be clarified but we’ll continue to update these pages. Make sure you use the form below to join the mailing list and stay up to date. Wherever possible we will be looking to facilitate electronic reporting.
Suitability & Advice
MiFID II includes additional requirements for obtaining information about each client’s risk tolerance and capacity for loss.
MiFID II will mean that fewer products are treated as ‘non-complex’. The types of product that are subject to ‘appropriateness tests’ at the point of sale will also change. For example, structured deposits and shares or bonds that embed derivatives or incorporate structures that make them difficult for clients to understand will be deemed complex although it is worth noting that suitability obligations will address these issues for discretionary and advised business
This refers to both the recording of telephone conversations and retention of electronic communications relating, or which could relate, to transactions concluded and advice given in relation to client order services. Changes will relate to the reception, transmission, advice and execution of client orders. Landline phone calls at 7IM are currently recorded, we will be extending recording capabilities to 7IM mobile phones over the coming year.
No monetary benefits and no more than ‘minor’ non-monetary benefits will be permitted under MiFID II. This means that we will still be able to support events which have clear benefits to clients but the traditional forms of hospitality are unlikely to be acceptable.
The definition of ‘best execution’ will be amended slightly under MiFID II. Firms will have to take “all sufficient” steps to provide best execution to their clients, rather than “all reasonable” steps. Firms will be obligated to provide evidence that they have undertaken best execution to both the regulator and its clients on request and we will also be publishing data concerning where we execute transactions periodically via the website. This data will need to be customised depending on the class of financial instrument and type of service provided.
Product governance: distribution
Product providers will need to enhance governance arrangements to ensure that the products and services they sell are compatible with the needs, aims and characteristics of their target market both at launch and on an ongoing basis. Distributors, a very wide term which applies to anyone in the chain between product manufacturer and ultimate investor will have to obtain and provide enough information to ensure that the products and services they provide are not mis-sold. They will also have to identify any group of investors for whom these are not suitable. This will impact products and services that are accessed on platforms, where additional information may need to be obtained and provided.
Terms & Conditions
We will be reviewing and updating our Terms & Conditions and updating them in line with the regulatory changes. Your Relationship Manager will be in touch when we are ready to update clients.