Understanding the implications of MiFID II – seminar summary______

Rob Swan, Managing Director and Head of Data Services

Calastone hosted a seminar on 11th November regarding the implications of upcoming regulation MiFID II on the funds management industry. The purpose of the seminar was to raise awareness of MiFID II and encourage debate and collaboration between all parties.  Topics covered included; an Overview of MiFID II, The Impact of MiFID II on Distributors, The Appropriateness Test and A Fund Manager’s Perspective.

Overview of MiFID II

Mike Gould, Retail Markets Specialist at the Investment Association began his session by noting that there was much value in bringing together the various sectors of the value chain to discuss MiFID II.  Whilst MiFID, the forerunner to MiFID II, was focussed predominantly on markets, the latest round of legislation would step up elements of investor protection.

A number of provisions in the original MiFID had now been extended to professional clients under MiFID II including, additional powers for ESMA to step-in over a national regulatory body, an increase in disclosures, and suitability provisions.

Distributors should expect a big impact in term of costs and charges, for example, the requirement to give their clients a single figure combining all product and distributor costs.  Furthermore, a ban on commissions would be caught by MiFID II inducement rules (not currently subject to the UK’s Retail Distribution Review (RDR)).

The Impact of MiFID II on Distributors

Sally Rigg, Senior Manager at KPMG, spoke to the group regarding the elements of MiFID II that would apply to both sectors of the distribution chain, as well as the elements that would apply to the funds management industry as a whole such as investor protection and disclosures.

Rigg advised that MiFID II definitions should be read carefully, for example, that of ‘product manufacturer’; future consideration would have to be given in this instance if a distributor decided to approach a manufacturer with an idea.

Addressing the area of ‘management bodies’, Rigg advised that firms should assure staff had necessary knowledge and skills, and were considered fit and proper.  Additionally, FCA approval would need to be given in the event that the CEO and Chairman were the same person.  Distributors would also need to ensure that products were sold to a ‘target market’, and that there would be an explicit requirement to share data to monitor this on an ongoing basis.  The proposals regarding pricing and value, communication, inducements and record keeping were also covered.

The Appropriateness Test

Mike Gould took to the podium once more to speak about a key area of fundamental change within MiFID II: the appropriateness test.  Firms would be expected to undertake an appropriateness test for the sale of a complex product in order to ensure that the investor would have the necessary knowledge and experience (i.e. familiarity with products, a history of transactions, the education or profession of an investor, etc.).

Trade bodies were currently working together in order to share thoughts on how to apply this text.  Currently, UCITs (excluding structured UCITs) would be deemed as ‘non-complex’, along with individual shares.  All non-UCITS including NURS, AIFs, structured products, hedge funds etc. would be deemed as ‘complex’.  Further questions, such as the impact on direct-offer promotions and complex ‘non complex’ products were still under industry consideration.

A Fund Manager’s Perspective

Steve Jenner, Head of Customer Strategy at Henderson, focussed on how the industry should come together as a whole to work on meeting the huge challenges posed by the forthcoming MiFID II requirements, for example, the definition of a ‘target market’.   Likewise, the predicted information flow that would be required between fund manufacturers and distributors would also need to be developed into a workable solution.  Solutions for cross-industry processes could include either a standard due diligence questionnaire approach or an exchange of data, such as being developed by Calastone (i.e. building on existing data flows extending out to allow identification of key exceptions, trend, bubbles etc.).

Templates were likewise being developed by industry players in order to help satisfy the distributor due diligence requirement.  An eventual next-generation response to manage the sheer volume of incoming data could involve either a standard audited report or third party database.  Subjects also covered payments & inducements, commission requirements for ‘Independents/Non-independents, and ongoing client communications (for example, to communicate if a fund were to fall in value by 10% over a determined time period).

Jenner concluded that there was a huge amount of work to complete notwithstanding the recent delays to the regulation, and that the industry must commence in ‘joined-up thinking’ in order to best address the regulatory challenges.


Calastone’s Jon Willis acknowledged the potential delay of MiFID II, yet urged firms to use this added time in order to get their houses in order, even though certain technical details would still need to be worked through by the European Securities and Markets Authority (ESMA).

Willis expressed his sense of encouragement he felt in terms of turn-out to the afternoon’s event which represented a positive achievement in cross-industry involvement.  He noted that TISA had two forums on MiFID II – the Appropriateness Committee and the Product Governance Committee.  Willis encouraged firms to participate and have their views represented, thus taking the opportunity to determine a pragmatic and workable solution for the funds industry as a whole.

Calastone thanks Aviva for their hospitality, the speakers for their support, and the audience for attending. If you would like to receive more in-depth details regarding the subjects covered by the Calastone MiFID II Seminar, please do not hesitate to get in touch with marketing@calastone.com

Featured articles