On January 3rd 2018 the EU legislation MiFID II comes into force which means all firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded, will need to be fully complaint.
What is Mifid II?
Mifid II is shortform for the second Markets in Financial Instruments Directive from European regulators. It builds on regulation brought in during 2007 that sought to make investing more transparent for both retail and institutional investors and which standardised regulatory disclosures required for particular markets.In plain English that means everyone had to be clearer about costs, charges and fees and explain them in a standard way, up front.Mifid II is essentially the new trading rulebook for countries in the European Union and will bolster this transparency across financial markets within the EU. Affected firms include any that provide services to clients linked to ‘financial instruments’ – shares, bonds, units in collective investment schemes and derivatives – and the places where those instruments are traded.Mostly it will govern the way that financial investment providers, traders, brokers and advisers exchange data and information, charge and how they disclose theircharges. It must be fully implemented by all affected financial institutions by 3 January 2018.
But aren’t we leaving the European Union?
Yes, but Mifid II is scheduled for implementation before the UK Brexit negotiations conclude, meaning UK firms must still comply with European regulation. The UK regulator – the Financial Conduct Authority – released a statement as recently as spring this year which told financial services firms that they need to continue with their preparations for the application of the directive. While Mifid II is set to go ahead, the Brexit process is likely to make things more complicated for financial services firms which face the difficult task of adjusting to a post-Brexit marketplace that is yet to be defined.
Will Mifid II make fund fees clearer?
The financial watchdog, the FCA recently revealed findings of an in-depth probe into the fund management industry. There were lots of things to digest in there but one of the key elements was an attack on fund fees. In essence, it said many investors didn’t know how much they were really paying, or what they were paying for.
Mifid II requires investment firms disclose information on all costs and charges related to financial instruments and ancillary services. This includes management, advisory, custodian, fund entry and exit levies. Firms will be required to express these costs as a percentage and in pounds and pence. Some charges, like transaction costs, are variable and difficult to predict because a large event, political or market-based, could have a bearing on investment values and can be a legitimate reason to buy or sell in volume. However, previous years’ costs will be known. To this point, the directive stipulates for cost to be presented in an ex-ante (forecast) and ex-post (actual result) basis. Firms will also be legally obliged to inform clients on the costs incurred at least once a year.
How does the new directive affect me?
Not much initially. Clients of financial advisers, investment platforms and fund management firms should expect to receive a letter soon because Mifid II requires financial services firms to hold up-to-date information about their customers.Hargreaves Lansdown, the UK’s largest fund supermarket, for example, has already written to 520,000 of its clients and will be writing to the rest over the next couple of months to ask them to log into their accounts and confirm their nationality and national client identifier in order to comply with the pending EU directive. All investment service and stockbrokers will be required to do this. Investors who do not respond by the end of the year will not be able to trade shares, ETFs, investment trusts, bonds and a number of other stock market-listed securities when Mifid comes into effect on 3 January next year. Many of these changes will not be visible to the investor but transparency on fees should be.
How can EDG3 Help?
At EDG3 Solutions we realise the implications of this and how large a task it is for often already ‘stretched’ technical teams to meet the requirements, so with this in mind we have a range of ‘off the shelf’ and customised solutions to assist you.
From initial client information data collection using a range of new technologies, through to readership and viewer stats from your published documents we have existing products which can ease the stress of the regulation requirements. To find out more please contact the team.