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Page 1: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 1

Investment Management

conference

copy 2016 Deloitte Audit 2

Luxembourg Funds - Trends

Introduction

1000

3000

5000

7000

9000

11000

13000

15000

-

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mar-16

Funds Sub-funds and Net Assets in Luxembourg(EUR million and units)

Number of funds Number of Fund Units Net Assets (millions of euros)Source CSSF amp ALFI

copy 2016 Deloitte Audit 3

Fund initiators in Luxembourg by country of origin

Introduction

US GB DE CH IT FR BE NL LU DK Others

-

100000

200000

300000

400000

500000

600000

700000

800000

Market share of initiatorsat 30 April 2016

Net Assets (EUR million)Source CSSF amp ALFI

copy 2016 Deloitte Audit 4

Danish footprint in Luxembourg IM Markets

Introduction

SIF ndash Confidential promoter

copy 2016 Deloitte 5

Agenda

815 - 845 Registrering og morgenmad

845 - 855 Velkommen v Deloitte

855 - 920 Distribution v Jan Stieg Rasmussen Independent Director Fund

920 - 945 Regulatory strategy v David Moalem Bech-Bruun

945 - 1020 Paneldebat Implementation of MiFID II regulation

1020 - 1035 Kaffepause

1035 - 1110 Paneldebat Denmark Luxembourg ndash other regulatory updates

1110 - 1150 Digital and Fintech in Asset Management v Simon Ramos Deloitte Luxemborg

1150 - 1220 Digital and Fintech in Asset Management v Johan Lindberg RBC IampTS og Pontus

Kristiansson Kollektiva

1220 - 1230 Wrap-up v Martin Pedersen

1230 Networking og frokost

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 2: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte Audit 2

Luxembourg Funds - Trends

Introduction

1000

3000

5000

7000

9000

11000

13000

15000

-

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mar-16

Funds Sub-funds and Net Assets in Luxembourg(EUR million and units)

Number of funds Number of Fund Units Net Assets (millions of euros)Source CSSF amp ALFI

copy 2016 Deloitte Audit 3

Fund initiators in Luxembourg by country of origin

Introduction

US GB DE CH IT FR BE NL LU DK Others

-

100000

200000

300000

400000

500000

600000

700000

800000

Market share of initiatorsat 30 April 2016

Net Assets (EUR million)Source CSSF amp ALFI

copy 2016 Deloitte Audit 4

Danish footprint in Luxembourg IM Markets

Introduction

SIF ndash Confidential promoter

copy 2016 Deloitte 5

Agenda

815 - 845 Registrering og morgenmad

845 - 855 Velkommen v Deloitte

855 - 920 Distribution v Jan Stieg Rasmussen Independent Director Fund

920 - 945 Regulatory strategy v David Moalem Bech-Bruun

945 - 1020 Paneldebat Implementation of MiFID II regulation

1020 - 1035 Kaffepause

1035 - 1110 Paneldebat Denmark Luxembourg ndash other regulatory updates

1110 - 1150 Digital and Fintech in Asset Management v Simon Ramos Deloitte Luxemborg

1150 - 1220 Digital and Fintech in Asset Management v Johan Lindberg RBC IampTS og Pontus

Kristiansson Kollektiva

1220 - 1230 Wrap-up v Martin Pedersen

1230 Networking og frokost

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 3: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte Audit 3

Fund initiators in Luxembourg by country of origin

Introduction

US GB DE CH IT FR BE NL LU DK Others

-

100000

200000

300000

400000

500000

600000

700000

800000

Market share of initiatorsat 30 April 2016

Net Assets (EUR million)Source CSSF amp ALFI

copy 2016 Deloitte Audit 4

Danish footprint in Luxembourg IM Markets

Introduction

SIF ndash Confidential promoter

copy 2016 Deloitte 5

Agenda

815 - 845 Registrering og morgenmad

845 - 855 Velkommen v Deloitte

855 - 920 Distribution v Jan Stieg Rasmussen Independent Director Fund

920 - 945 Regulatory strategy v David Moalem Bech-Bruun

945 - 1020 Paneldebat Implementation of MiFID II regulation

1020 - 1035 Kaffepause

1035 - 1110 Paneldebat Denmark Luxembourg ndash other regulatory updates

1110 - 1150 Digital and Fintech in Asset Management v Simon Ramos Deloitte Luxemborg

1150 - 1220 Digital and Fintech in Asset Management v Johan Lindberg RBC IampTS og Pontus

Kristiansson Kollektiva

1220 - 1230 Wrap-up v Martin Pedersen

1230 Networking og frokost

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 4: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte Audit 4

Danish footprint in Luxembourg IM Markets

Introduction

SIF ndash Confidential promoter

copy 2016 Deloitte 5

Agenda

815 - 845 Registrering og morgenmad

845 - 855 Velkommen v Deloitte

855 - 920 Distribution v Jan Stieg Rasmussen Independent Director Fund

920 - 945 Regulatory strategy v David Moalem Bech-Bruun

945 - 1020 Paneldebat Implementation of MiFID II regulation

1020 - 1035 Kaffepause

1035 - 1110 Paneldebat Denmark Luxembourg ndash other regulatory updates

1110 - 1150 Digital and Fintech in Asset Management v Simon Ramos Deloitte Luxemborg

1150 - 1220 Digital and Fintech in Asset Management v Johan Lindberg RBC IampTS og Pontus

Kristiansson Kollektiva

1220 - 1230 Wrap-up v Martin Pedersen

1230 Networking og frokost

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 5: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 5

Agenda

815 - 845 Registrering og morgenmad

845 - 855 Velkommen v Deloitte

855 - 920 Distribution v Jan Stieg Rasmussen Independent Director Fund

920 - 945 Regulatory strategy v David Moalem Bech-Bruun

945 - 1020 Paneldebat Implementation of MiFID II regulation

1020 - 1035 Kaffepause

1035 - 1110 Paneldebat Denmark Luxembourg ndash other regulatory updates

1110 - 1150 Digital and Fintech in Asset Management v Simon Ramos Deloitte Luxemborg

1150 - 1220 Digital and Fintech in Asset Management v Johan Lindberg RBC IampTS og Pontus

Kristiansson Kollektiva

1220 - 1230 Wrap-up v Martin Pedersen

1230 Networking og frokost

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 6: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

USA 4840

Canada 290Brazil 280

Asia amp Pacaific 1190

Americas (excl USA Brazil and Canada) 040

Luxembourg 950

Europe (excl Luxembourg) 2370

Africa 040

Source Investment Company Institute (ICI) figures as per 31 Dec 2015

Global AuMeuro 3693509 bn

(kr 27516642 bn)

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 7: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Country Total AuM euromn Market Share

Luxembourg 3 506 201 279

Ireland 1 898 825 151

Germany 1 729 234 137

France 1 682 808 134

United Kingdom 1 479 696 118

Switzerland 501 528 40

Sweden 285 561 23

Italy 281 564 22

Denmark 258 369 21

Spain 254 368 20

Others 702 458 56

Total 12 580 612 1000

Source EFAMA figures as per 31 Dec 2015

Country Total AuM euromn Market Share

Luxembourg 2 946 860 361

Ireland 1 446 873 177

United Kingdom 1 083 481 133

France 762 929 93

Switzerland 410 199 50

Germany 309 852 38

Sweden 262 445 32

Italy 226 043 28

Spain 185 420 23

Denmark 107 871 13

Others 426 138 52

Total 8 168 113 1000

UCITS amp AIFs UCITS

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 8: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

8achieve

real AuMsuccess

21achieve partial success

71fail to ever reach meaningful size and scale

Source Fund Radar January 2015

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 9: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

67

20

4

2

2

Luxembourg

Ireland

France

Jersey

United Kingdom

67 of all UCITS registered in 3 or more countries are Luxembourgish

Source Lipper LIM amp PwC Analysis as per 31 Dec 2014 (poster PwX March 2015)

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 10: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Source Global Fund distribution analysis ndash March 2016

Luxembourg market share of foreign cross-border funds registered for sale

Peru 46

Chile 60

Germany 59

France 61Switzerland 65

Bahrain 75

Singapore 69

South Korea 94

Japan 55

Taiwan 76Hong Kong 74

Poland 95Denmark 62

Finland 65

Norway 70

Sweden 64

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 11: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

MiFID IIrsquos regulation of inducementsA possible roadmap forward for the new business models

Partner David Moalem PhD 16 June 2016

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 12: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

2

Content

1 Introduction and overview helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip3

11 What does the MiFID II regime look like4

12 Which investment opportunities do the customers have in the bankhelliphelliphellip8

13 How does the MiFID II ban on inducements affect the services 10

14 What does the Danish legislative act passed on 3 june 2016 entail13

2 A possible way forward for the new business models helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip18

21 Whatrsquos all the fuzz about19

22 Can we develop a method to assess the third party payments under MiFID II21

23 What and when are the three third party payments allowed25

24 Does the MiFID II cost transparency regime affect the new business models32

25 What does the future look like for the asset management industryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip34

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 13: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering1 Introduction and overview

3

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 14: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering11 What does the MiFID II regime look like

4

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 15: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

5

High level overview of the MiFID II regime

Level 1 MiFIR

(Direct effect)

Capital Market Act Danish Financial Business Act

Level 1MiFID II

(Implementation required)

Level 2RTS and ITS

(Direct effect)

Level 2RTS and ITS

(Direct effect)

Level 3ESMA guidelines and QampArsquos

(Optional implementation)

Level 3ESMA guidelines and QampArsquos

(Optional implementation

Delegated Acts

MiFID II

Delegated Acts Delegated ActsDelegated Acts

Level 2Inducements Product governance

and client assets(Implementation required)

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 16: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

6

Overview of the EU legislative process (12)

Level 1 MiFIR

Level 1MiFID II

Qualifying holdings Volume CapSafeguarding productgovernance amp inducements

Organisational requirements

Derivatives ndashClearing

Derivatives ndashTrading obligation

Algorithmic trading -Marketplace

Market MakingDerivatives -direct and foreseeable effect

Algorithmic trading ndashOrganisational requirements

Fee structures

Data reporting- Services providers

Access CCPUnexecuted orders to transactions

Material market ndash

liquidity

Tick Size

Suspension Calculation and the application of position limits

Benchmark Admission of financial -instruments

Access to regulated market

Clock synchronization Transaction reportingBest Execution Maintenance of relevant dataReferencedata

Transparency requirements -shares

Derivatives ndashDeinition

Transparency requirements -bonds

Level 1

Level 2

RTS

Supervisory measures

Cooperation betweencompetent authorities

Ancillary servicesThird country investmentfirms - Permission

BranchThird country investmentfirms - Application

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 17: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

7

Overview of the EU legislative process (22)

MTF amp OTF -Functioning

Market -Crossborder cooperation

Qualifying holding

Positions -Reporting to ESMA

Cooperation betweencompetent authorities

Sanctions ndashReporting

Investment Firms ndashPermission

BranchndashPermission

Suspension Reporting of positionsData service providers

Level 2

ITS

Level 3

QampA

and

Guidelines

Definitions in Sections C6 and C7 of Annex I

Transaction reporting

Qualifying holdings QampA ndash CFD Quality enhancing services

Assessment of knowledge

and competence

Complex debt instruments and structured deposits

Cross-Selling Practices

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 18: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering12 Which investment opportunities do the customers have in the bank

8

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 19: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Overview of the customersrsquo investment opportunities in the bank

9

Customer [X] Bank

Execution-only(internet banking etc)

Execution of orders

Portfolio management agreement

Independent investment advice

Non-independent investment advice

Same MiFID II regulation of inducements

Same MiFID IIregulation of inducements

Other investment services

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 20: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering13 How does the MiFID II ban on inducements affect the services

10

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 21: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducementsrsquo application on third party payments

11

Investment service Main rule Exemption Necessary payments

Portfolio management and independent investment advice

Non-independentinvestment advice and all otherservices

Ban on accepting and retaininginducements paid by third parties

Article 24(7) and (8)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they

(i) are capable of enhancing the qualityof the service provided to a client

(ii) Do not impair compliance with the requirement to act in the bestinterest of the client and

(iii) the client has been informedprecedingly

Article 24(7) and (8)

Allowed to receive rdquonecessarypaymentsrdquo that

(i) Make it possible or arenecessary to provide the service and

(ii) Do not impair compliance with the requirement to act in the best interest of the client

Article 24(9)

No legal basis in MiFID II to receive such payments

Ban on acceptinginducements paid by third parties

Article 24(9)

Allowed to receive inducements if the payment

(i) is designed to enhance the quality of the relevant service to the client and

(ii) Does not impair compliance with the requirement to act in the best interest of the client and

(iii) the client has been informed preceedingly

Article 24(9)

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 22: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A graphic overview of the regulatory model of third party payments

12

All third party payments

Ban on inducements

A fundamental legal principle

What is not prohibited by law is allowed

Allowed payments

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 23: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering14 What does the Danish legislative act passed on 3 june 2016 entail

13

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 24: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

14

30 March 2016

Denmark is partly rdquofrontrunningrdquo MiFID II with half a yearhellip

Proposal for earlyentry into force of the ban on inducements

1 July 2017October 2016

Entry into force of MiFID II incl allowed inducements and cost

transparency

3 January 2018

Expected MiFID II proposal incl allowed inducements

and cost transparency

Entry into force of the ban on inducements

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 25: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The ban on inducements is extended to Danish collective pool schemes

15

Investmentservice

Main rule Exemption Comprised entitiesEUDKrules

Portfolio management and independent investmentadvice

Savings in collectivepool schemes

Ban on acceptingand retaining feespaid by third parties

MiFID II Article 24(7) and (8)DFBA Section 46bAIFM Section 19b

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

MiFID II Article 24(7) and (8)DFBA Section 46b no 3 delegated actsAIFM Section 19b no 3 delegated acts

Credit institutions

Credit institutions Investment firms MC Mortgage credit

institutions AIFM Investment advisors

(separately regulated)

Ban on accepting and retaining fees paid by third parties

DFBA Section 50(2)

Allowed to accept rdquominor non-monetarybenefitsrdquo if they(i) are capable of enhanving the quality of

the service provided to a client (ii) Do not impair compliance with the

requirement to act in the best interestof the client and

(iii) the client has been informedprecedingly

DFBA Section 50(2) delegated acts

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 26: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Not a total ban on inducements in Denmark

16

[X] Bank

Portfolio management agreement

Non-independentinvestment advice

Independent investment advice

MiFID IIInducements

DKSolution

Execution of orders

Execution only

Other investment services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 27: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Important official pointers in the Danish legislative workshellip

Focus on costs rdquoThe legislation is aimed at credit institutions and other distributors of units in UCITS UCITS play a major role in the development and production of fund units However they do also play a major role in the question of inducements and the extent of these The Danish FSA will increase the supervisory focus on UCITS and the costs that UCITS holds especially the costs relating to inducements payed to credit institutions and other business partnersrdquo (Legislative proposal page 7)

Sector rdquoTo follow up on the Danish report on inducements the Danish FSA will - aside from the legislative proposal ndash initiate discussions with the financial sector with the purpose to agree on guidelines to ensure that clients receive better investment advice better and easily understandable investment products and to ensure more transparent investment products to a lower costrdquo (Legislative proposal page 8)

Inducements rdquoMiFID II fundamentally changes the rules on how and when certain kinds of third party payments (fees commissions or any monetary or non-monetary benefits) may take place MiFID II use the term rdquoinducementsrdquo that includes all kinds of non-necessary incentivizing fees commissions or any monetary or non-monetary benefits that may give rise to a conflict of interest in relation to MiFID IIs requirement to act in the best interest of the client rdquo (Legislative proposal page 22)

Profit loss rdquoWe are talking about a possible cost reduction for the consumers of app 1 billion DKK and that is really really a lot of moneyrdquo (The Danish Ministerrsquos speech in connection with the Parliamentrsquos 1st reading of the legislative proposal and later in connection with QampArsquos on the proposal)

17

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 28: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering2 A possible way forward for the new business models

18

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 29: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering21 Whatrsquos all the fuzz about

19

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 30: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

The MiFID II business models doesnrsquot fit in the shoehellip

20

Third Party

Client

Bank

Inducements Ok if positive test

Third Party

Client

Bank

Inducements Not allowed

Client experience Free service

Client experience I have to pay

Non-independent adviceand other services

Portfolio management and independent advice

Third Party

Client

Bank

InducementsOk

Client experience Free service

Investment advice and portfolio management

Inducements are today integrated in the payment flows on the Danish market

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 31: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering22 Can we develop a method to assess the third party payments under MiFID II

21

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 32: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Method tree for assessing third party payments under MiFID II

22

Type of service

Portfolio management Independent advice

Non-independent adviceand all other services

Inducements

Costs

Banned

Allowed

Inducements

Costs

Allowed if test is positive

Allowed

Necessary payments Allowed

Banned if test is negative

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 33: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Overview of MiFID IIrsquos treatment of third party payments

23

Investment service 1 Costs 2 InducementsInducement test passed

3 Neccesary payments

Portfolio management and independent investment advice

Non-independent adviceand other services

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 34: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

24

MCIF

X Bank

UCITS

Allowed third party payments in the new business models

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs 3 Necessary payments2 Inducements

Portfolio management and independent investment advice

Non-independent investment adviceand other services

MCIF

X Bank

UCITS

Payments in accordance with UCITS-regulation

Client

Client payment

1 Distribution costs

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 35: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering23 What and when are the three third party payments allowed

25

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 36: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 1 Distribution costs paid by a third party

No conflict of Payments that are not incentivizing for the bank will continue to be legal under MiFID II Such payments are legal payments received by the bank from third parties which does not create a conflict of interest between the bank and the client

Costs Since MiFID II forbids the bank to make a profit or other similar benefit from third parties the only legal non-incentivizing third-party payments will be costs

Documentation Payments from a third party to the bank which verifiably only cover costs will not be able to create a conflict of interest and will therefore be legal under MiFID II

Example An important practical example is where a UCITS andor an investment manager covers the distribution costs of a bank covering the distribution of the units in the UCITS to the end-client

In this case the banks costs for the service are covered by the UCITSmanagement company which otherwise would have had to carry the distribution out on its own

26

interest

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 37: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Examples of allowed distribution costs

27

Capacity costs Amount

Providing infrastructure including physical locations trading platform []

Link to the banks data center CSD []

By name registration of investors []

Setup for trading maintenance of payment structures []

Internet banking solutions []

Additional development and operation of IT systems investor portals etc []

Statutory storage archiving of data personal data []

Reports of buying and selling rates dividends etc to the tax authorities []

Training of own employees with a view of product understanding etc including participation in courses certification ongoing re-certification

[]

Creation and registration of clients including money laundering registration etc []

Completion of the aptitude test appropriateness test []

Provide the customer with regulatory information documents info etc []

Managing and securing complaint handling []

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 38: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Allowed inducements

28

MCIF

Client

[X] Bank

UCITS

Inducement

Conditions Content Assesment

1 Quality enhancingservice

The inducement must contribute to ensurethat [X] Bank provides a quality enhancingservice to the client

2 Best interest of the client

The inducement must not impair [X] banksrsquo abilities to act in the best interest of the client

3 Precedinginformation

The client must clearly be informed on the fact that [X] bank receives inducementsprecedingly

The inducement test

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 39: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 2 Business development- Inducements paid for extra serviceshellip

29

Source The delegated directive see recital nos 22-24 including Chapter 4 - Inducements article article 11 no 2(a)

MiFID II requirementsNon-independent advice and other

services

rdquoHigher service levelrdquoThe same service however on a

higher level

Indtaeliggter

rdquoAdditional servicesrdquoOther services next to the service in

question

The inducement test

rdquoDoes the inducement lead to (i) an additional service or (ii) a higher service level to the client while beingproportional with the inducement receivedrdquo

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 40: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Payment 3 Necessary payments

Wording rdquoThe payment or benefit which enables or is necessary for the provision of investment services such as

custody costs

settlement and exchange fees

regulatory levies

and legal fees

hellipand which by its nature cannot give rise to conflicts with the investment firmrsquos duties to act honestly fairly and professionally in accordance with the best interests of its clients is not subject to the requirements set out in the first subparagraphrdquo

Content There is no additional interpretation available with regard to the detailed content and it is uncertain whether further Level 3 guidance will be issued

But with the wording such asldquo which is followed by a listing of examples of necessary payments follows the implication that the list is non-exhaustive meaning that there must be other types of necessary payments

30

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 41: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering24 Does the MiFID II cost transparency regime affect the new business models

31

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 42: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

A rdquogame-changerrdquo affecting the Bank amp Customer relationship

32

Bank amp Customer

MiFID II - Inducements

New business models

New language for payments

Re-calibration of payments

MiFID II ndash Cost transparency

New detailed disclosure

Direct disclosure to the customers

Also prof clientseligible counterparties

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 43: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Spg 1 ndash Vil de nye investorbeskyttelsesregler paringvirke forretningsmodellerne

Transparent and detailed reporting direct to the individual customer

33

A Product

B Service

Total costs EUR and Illustration of the effect of the total costs on the investorrsquos returns

Commissionsrsquo share of the total cost

ESMA Proposal Possible illustration

Total costs

CommissionsInvestment(EUR)

At the beginning of the period

At the end of the period

Yield before costsamp expenses

EUR

Year 1 - Costs amp expenses

EUR

Year 2 - Costs amp expenses

EUR

Year 3 - Costs amp expenses

EUR

Net yieldEUR

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 44: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny regulering25 What does the future look like for the asset management industry

34

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 45: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Overview of the size of third party payments before and after MiFID II

35

Today

Portfolio management and investment advice

MiFID II

Non-independent advice

100

MiFID II

Portfolio Management and

independent advice

[100] [70-80]

Costs

Necessary payments

Allowed inducements

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 46: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

To budskaber til arbejdet med implementering af ny reguleringQuestions amp comments

36

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 47: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

CopenhagenDenmark

AarhusDenmark

ShanghaiChina

T +45 72 27 00 00wwwbechbruuncom

37

David Moalem

Partner Attorney-at-law PhD middot Copenhagen

Capital Markets amp Financial Institutions

T +45 72 27 33 24M +45 25 26 33 24E dmmbechbruuncom

Contact

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 48: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 19

Panel discussion

Implementation of MiFID II regulation

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 49: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 20

Panel discussion

DenmarkLuxembourg ndash other regulatory updates

Anders Klinkby Danish Investment Fund Associaion (DK)

David Moalem Bechbruun (DK)

Florence Stainier Arendt amp Medernat (Lux)

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 50: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

How will Fintech impact fund

distributionFintech is reshaping the operating model of asset managers distribution

intermediaries and their service providers

June 16th 2016

Simon Ramos

Partner ndash Advisory amp Consulting

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 51: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

274

269

133

121

95

82

67

269

Lending

Payments

Personal Finance

Equity Finance

Retail investment

Small Business Tools

Banking Infrastructure

Other

Fintech is reshaping the financial services sector

Investment in Fintech is growing globally Luxembourg today has more than 150 Fintechs

Active Fintech clusters number of firms

Emerging technological innovation in the financial sector

Global Investments from 4 billion USD in 2009 to 122 billion

USD in 2014 US is at forefront

EU showing promise around 2 billion USD in 2014

Lower costs more efficiency threat to financial institutions

FinTech partner with non-financial digital giants (Google)

Asset managers to pay attention and act now

Luxembourg has a dynamic FinTech sector

Amazon Payments PayPal Rakuten Yapital established

quarters in Luxembourg along with Startups

Online discretionary portfolio service

Storage and payment solutions for Bitcoin

Payment solutions for (e-)merchants based on e-

wallet

Anti-Money Laundering software

Customer risk-profiler for Financial Advisers

Free financial calculation tools for private individuals

Human Recognition Technology analyzing behavioral

data

Stock market forecasting tools

Incubators attracting new companies (Luxfuturelab)

Proximity to clients IT infrastructure government support

public research talent pools in finance and technology

Other Small business tools crowdfunding security and fraud remittances financial technology investments financial technology investments

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 52: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reservedDeloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Product

management amp

marketing

New generation of investors

Technological innovations Data surge

bull Stay in control (do it yourself)

bull Tailored amp multi channel advice

bull Peers and social networks

bull Digital front-end

bull Downside protection and hedging

bull Yield and service of WM clients

bull Social responsible investments

bull Blockchain

bull Digital payments

bull Machine learning

bull Digital investment platforms

bull P2P lending

bull Growing quantity of sources and data

bull Need for powerful data processing

bull Allow for real-time information

bull Shifting mix of required analytical

capabilities

mdash Algorithmic

mdash Predictive

Now

bull AIFM UCITS V

PRIIPS MiFID

AMLD IV CRD

EMIR

Complex and evolving regulatory landscape

Trade order

processing

Post trade

servicing

Tomorrow

bull Shared ledger

bull Smart contracts

bull Online payment

bull Data

confidentiality

bull Cybersecurity

1 2

Regulation and Cybersecurity 3

Fund distribution

value chain

Mega trends are driving the Fintech revolution in

investment management

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 53: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Benefits for asset managersPractical applications

Tailor advice and products to client needs

Improve marketing strategies

Tailored market intelligence

Provide digital front end

RegTech and Cybersecurity

Intuitive guided online platforms

Goal-based investments

Robo advisory

Engage with the end investor

Offer better risk data analytics

Improve wealth reports

Fintech applicationsHow can Fintech facilitate

Portfolio and transaction data

AML amp KYC client data

Collect and analyze data

Make sense of data

Investor proximity with asset managers

Social investments

Enhanced online platforms (more than

execution)

Growing interest in execution only

Banks and investment firms are moving

Big data and the growing use of D2C channels see very tangible Fintech applications

1

2

Big data

D2C channels

Product management and marketing1

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 54: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicing Blockchain and other

initiatives

Hybrid asset servicing transition model

Blockchain Ongoing initiativesNo lsquobig bangrsquo blockchain

transition but rather a hybrid

asset servicing model will offer

cost efficient and automated

services to asset managers

bull Disruptive new technology providing access to smart

contracts and shared ledger technologies

bull Potential process disintermediation

bull Order management

bull Record keeping amp ownership verification

bull Asset servicing (eg corporate actions)

bull Settlement and clearing

bull Payments

bull Fund order management and execution platforms

bull Digital passport

bull Online KYC register

bull Post trade asset servicing automation

bull Automated reconciliation

bull Data analytics and risk metrics

bull RegTech

bull T2S

Enhanced digital platforms Regtech White labelling amp managed services

Efficiency for non-subjective tasks via

specialized Fintech solutions (eg

regulatory screening online KYC)

bull Social investments

bull Tailored robo-advice

bull Market intelligence

bull Wealth and performance reporting

Act as a one-stop-shop managed

services and white label solutions for

asset managers

2

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 55: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Regtech to address continuous

regulatory challenges

Confidentiality

Payment services

Smart contracts

New financial products

Consumer protection

Cyber-security

Increased regulatory requirements in a

Fintech world

Regtech as support

New innovative and agile Fintech solutions to tackle regulatory requirements

The proposition of Regtech principally articulates around four advantages

Cost ndash you pay for what you use

Flexibility ndash customised control over data access to and sharing of data

Performance Scalability ndash ability to easily add or remove service features

Security ndash data encrypted during transmission and while at rest

Regtech could provide Luxembourg with a competitive edge

White label Regtech solutions could assist asset managers in the following

areas

bull Transactions reporting (MiFIR EMIR SFTR MAD)

bull Regulatory reporting (AIFMD Solvency II)

bull Regulatory watch (Automatic screening)

bull Online KYCAMLCFT

3

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 56: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

Asset servicers can offer one-stop-shop Fintech services to asset managers

Product management and marketing

Trade processing amp post trade

Transfer agent

Data

Custodian

Central administrator

Order mgmt platformAsset

servicers

AM1

AM2

AM3

White label Fintech solutions

bull Online order management

bull Risk metrics

bull Online performance attribution reports

bull Investment advisory algorithms (based on

investment patterns and behaviors)

bull Digital payments

bull Online market insights reports

bull Improved automated reconciliation process

bull Automated order aggregation

bull Improved management and clearing industry

standards

bull Distributed ledger KYC services

One-stop-shop managed services

bull Fund set-up and liquidation

bull Distribution and registration support

bull Operational tax management

bull AMLCFT

bull Regtech

Hybrid asset

servicing

model

Blockchain

1

2

D2C

Ongoing initiatives

Fintech provides opportunities for asset managers

in Luxembourg from front to back

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 57: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

Deloitte Digital Copyright copy 2016 Deloitte Digital LLC All rights reserved

This publication contains general information only and none of the member firms of Deloitte Touche Tohmatsu

Limited its member firms or their related entities (collective the ldquoDeloitte Networkrdquo) is by means of this

publication rendering professional advice or services Before making any decision or taking any action that may

affect your business you should consult a qualified professional adviser No entity in the Deloitte Network shall

be responsible for any loss whatsoever sustained by any person who relies on this publication

As used in this document ldquoDeloitterdquo means Deloitte Consulting LLP a subsidiary of Deloitte LLP Please see

wwwdeloittecomusabout for a detailed description of the legal structure of Deloitte LLP and its subsidiaries

Certain services may not be available to attest clients under the rules and regulations of public accounting

Copyright copy 2015 Deloitte Development LLC All rights reserved

Member of Deloitte Touche Tohmatsu Limited

Thank youContact us

Simon Ramos

Partner ndash Strategy Regulatory

Carlo Duprel

Director ndash Strategy Regulatory

Patrick Laurent

Partner ndash Technology amp Enterprise

Application Leader

Francois-Kim Huge

Director ndash Regulatory Strategy

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 58: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 29

Session

Digital and Fintech in Asset Management

Implementing Robot AdvicePlatform to

enhance distribution

Johan Lindberg RBC IampTS

Pontus Krisitansson Kollektiva

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte

Page 59: Investment Management - Deloitte United States · third parties Article 24(7) and (8) Allowed to accept ”minor non-monetary benefits”, if they: (i) are capable of enhancing the

copy 2016 Deloitte 30

Session

Wrap-up

Martin Pedersen Deloitte