MiFID II: A practical perspective

Thinking

MiFID II: A practical perspective

MiFID II is clearly a wide-ranging piece of legislation, which will have a significant impact across the asset management industry (as well as for the sell-side). In fact, almost every discussion I have about it seems to throw up a new perspective or challenge.

Despite the extended timeline, with implementation now expected early 2018, there is much work to be done; clients who have already performed gap analysis are reporting lists of hundreds of tasks to be performed, which need to be fitted around significant existing project and change backlogs. To add to the challenge, although many of these tasks are expected to have a high and cross-functional impact, the exact requirements are not yet known.

One of the first topics that usually comes up in conversations is transaction reporting, particularly the challenges around operationalising data capture and a recurring theme of how to handle the privacy and storage issues of having to report personal data relating to the trader alongside trade-related information. In addition, even if you run funds outside the scope of MiFID II, your broker may well be in scope so you will need to be able to provide them with any missing data fields (particularly those around the trade decision-maker). Furthermore, there are highly onerous time-based requirements, e.g. the deadline for reporting on OTCs in equities is one minute, and 15 minutes for non-equity OTCs. There are clearly a number of challenges, and a significant body of work, relating to this one aspect of MiFID II only.

Another interesting aspect is the need for firms to reassess their interaction with distributors, and their end investors. Under MiFID II, firms cannot just hand-off to the distributor and hope they sell their product - they will need to know who the end-client is and ensure their products are being distributed to the right target market. There will also be significantly more data flow between managers and distributors; distributors will have to respond to due diligence questionnaires, and managers will need to provide daily cost in/out for every ISIN to their distributors. For managers with many distributors, or distributors with many managers, this will likely represent a significant challenge in terms of volume of data and effort required and it is interesting to consider whether both sides may look to consolidate which parties they interact with.

In addition to the above, firms will have to meet new requirements around telephone taping, monitoring face-to-face meetings re client transactions. conduct of business, inducements, enhanced compliance monitoring and best execution, amongst others.

Given the wide-ranging and cross-functional nature of the legislation, how your MiFID II programme is structured is critical in ensuring effective delivery. As well as purely striving for compliance, it is also worth taking time to assess opportunities for synergies both within the programme and within the industry; how do our systems interact to ensure effective data capture and sharing? Could know your distributor due diligence be standardised and pooled across multiple firms and distributors? How does our response to MiFID II affect our global operating model? What is the interaction with other regulatory and non-regulatory projects?

There is clearly significant work still to be done over the next 18 months or so, and are many interesting views to be shared. Should you wish to discuss, please do get in touch.

Share this post

By Dan Sharp

Dan is a management consultant for Knadel, and has worked on many projects in the IM industry, particularly focusing on Outsourcing and Operating Models for institutional asset managers.

+44 (0)20 7489 6365