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How are you preparing for MIFID II?

23 August 2017

With the introduction of the Markets In Financial Instruments Directive II on 3 January 2018 looming large on the horizon, advisers should start to prepare in earnest – but how?

market financial instruments


With the introduction of the Markets in Financial Instruments Directive II on 3 January 2018 looming large on the horizon, advisers should start to prepare in earnest – but how?


Two headline topics that directly concern financial advisers relate to the introduction of a European-wide standard for independence for the first time and the need to record or take notes on any phone calls with clients.
Lee Travis, head of professional development at the Society of Mortgage Professionals, says: “Any firms that had hoped Brexit might give them a reprieve are going to be disappointed, as the FCA will be adopting the framework in full.”
Firms will be able to offer advice on a non-independent and independent basis, provided they don’t present their whole business as independent and there is a clear separation between the two advice types.
“This could make it more attractive for independent firms to specialise in a particular area of the market and some may want to reorganise themselves into dual independent and non-independent operations for different areas of financial planning,” says Lee.
The entire retail financial advice profession will be subject to a significant change that requires financial advisers to record or take notes on any phone calls with clients that are ‘intended to result in a transaction being undertaken’.
“This is perhaps the most contentious area according to feedback from the adviser community,” says Lee.
“Despite taking a pragmatic and proportionate approach, the requirements represent a significant change for many. However, advisers can take consolation from the fact that the FCA had the opportunity to force recording across the board, but pulled back a little [and offered an alternative of note-taking].”
Lee advises firms to structure their MiFID plans around three stakeholders: customers, regulators and other firms. “If you know how you will collect and deliver the required information to these three stakeholders, you will be well on the way to complying with MiFID. The FCA’s policy statement 17/14 is a great place to start to discover the information requirements.”


In recent conversations with advisers about MiFID II, Sense Network’s compliance director John Netting has often heard advisers express relief that call recording is not going to be mandatory.
“While not the full story, this is to be expected as headlines like ‘FCA rolls back on client call recording proposals’ are often an adviser’s main source of information,” he says.
“Reliance on the press should not be a surprise as the latest policy statement [17/14] is 1,068 pages long and some individuals will have neither the time nor possibly the inclination to read it.”
Advisers who do not have access to the support of a network or compliance consultancy may, therefore, only be aware of the changes that warrant the most column inches. However this could mean they are blissfully unaware of other changes still requiring their attention.
“Some advisers may think that the changes do not apply to them, but the reality is that all firms that conduct investment business are affected by MiFID II, regardless of their MiFID status,” says John.
“Unwittingly, as a result firms could miss changes like the new definition for independent advice, or the need to submit a notification to FCA to add structured deposits permissions, or that they will have to prevent, as well as identify and manage, conflicts of interest to name just a few.
“Potentially more significant, however, is the introduction of a requirement to provide clients with aggregated information about costs and charges prior to the provision of services and that this disclosure will need to be made on at least an annual basis.”
John hopes that the FCA will produce focused factsheets to help firms understand which of the proposed changes apply to them and encourages advisers to not just rely on press headlines, but to check the FCA website regularly.


Richard Nuttal, head of compliance policy at SimplyBiz, points to the significance – and uncertainty – of the legislation.
“There’s been a lot written about MiFID II. It’s not hard to understand why when this is one of the most significant pieces of EU regulation since, well, MiFID.
“A lot of headlines seen over recent times could lead to concern if read in isolation, and what’s interesting about this is that most of the final rules have yet to be published.”
With the UK already having one of if not the strongest regulatory systems in the EU, what are the key changes for investment intermediaries?
Firstly, the likely introduction of a watered-down approach to the definition of independence could enable firms to tailor their product offering to their target market.
“Rather than having to consider all retail investment products for every client, we’re likely to see this replaced with the consideration of a broad range of retail products; these could be aligned to a firm’s target audience or help a firm retain its independence whilst specialising in certain areas,” says Richard.
“To ensure independence is retained the action to be taken immediately is to include structured deposits within your scope of permissions. This is a simple process and one without charge until the end of the year.”
Secondly, the definition of advice is changing too, thanks to the Treasury amending this to become a personal recommendation in line with the definition within MiFID.
“This simplifies what advice constitutes, but includes a significant addition – the word ‘hold’ being included,” says Richard.
Where an adviser reviews an investment and no changes are made, it will become a personal recommendation and will require issue of a suitability report.
“Other changes will be seen and some will require action, but none that will change the advice process like these two,” adds Richard.


MiFID II is shaping up to be far more onerous than its forebear and firms need to do all they can to prepare, according to Ian Cornwall, director of regulation at the Personal Investment Management & Financial Advice Association (PIMFA), formerly the Wealth Management Association and Association of Professional Financial Advisers, which merged on 1 June.
The legislation aims to strengthen investor protection and enhance the transparency and oversight of financial markets, and over the past year the organisation has created 19 working parties dedicated to its understanding and implementation covering multiple aspects of the directive from investor protection, product governance and costs and charges to reporting to clients, best execution, transaction reporting and suitability.
Ian urges firms subject to MiFID II transaction reporting obligations, including investment service and stockbroking businesses, to start confirming investors’ nationality and national client identifier – a new requirement that aims to help authorities identify market abuse.
Without this information, investors will not be able to trade shares, exchange-traded funds, investment trusts, bonds and a number of other stock market-listed securities.
“Whilst the industry is still awaiting further information, there are many areas where actions can be taken to meet the implementation deadline,” says Ian. “Many firms have started their work on meeting the client identifier criteria, so they’re addressing the need to obtain LEIs [legal entity identifiers] with relevant clients, identifying decision makers and obtaining relevant data.
“Invariably, firms are worried about what they do not yet know, but this should not delay them pressing forward in those areas where there is sufficient information.
“It may also be the case that firms may not get absolute certainty on specific issues and with less than five months to go, may have to consider making a judgement, ensuring they document the basis of the judgment, and take relevant action.”