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Impacts on the Information System for distributors of financial products

MIF 2

1st December 2015

Version 1.00

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TABLE OF CONTENTS

10 Introduction

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Axes of evolution with MIF 2

Impacts on the information systems

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INTRODUCTION

MIF 2 entry into force is scheduled for January 2018 and aims to enhance the investors’ protection through an enhanced transparency.

MIF 2 will revolutionize the organization of financial products distribution including the restriction of management companies’ commissions retrocessions payment to funds distributors when the latter are declared as independent. This also applies to outstandings managed under mandate.

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AXES OF EVOLUTION WITH MIFID 2 FOR DISTRIBUTORS 1

IMPACTS OF MIFID 2

1 Client / CRM profiling• Establish clients risk profile• Measure tolerance to losses

compared to client actual situation• Change of situation

2 Product profiling• Set a segmentation according to the

target market and the client category

• Define the distribution strategy and follow adequacy

3 Distribution circuit

• Classify products by risk profile• Manage distribution mode by

advice capacity typology

4 Information transparency• Costs display

(advice and process)

• Provided services costs display

8 Permanent report• Control risk profile/product

adequacy• Report on advice during client

relationship• Track recommendations

5 Record keeping• Prove that an advice service existed

as well as a client relationship follow-up

6 Producer/distributor agreement

• See impacts on the distribution method (inducement, traceability)

• Reset the contractual enhancements of the distribution circuit

7 Client agreement• Set client agreements adapted to

the MIF2 expectations• Adapt the RTO/under mandate

distribution method

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IMPACTS ON THE DISTRIBUTORS INFORMATION SYSTEM 2

Profiling / Segmentation

Risk profile

Advice profile

Product profile

client

collaboratorproduct

compliance

With MIFID 2, we must be able to manage profiles adequacy on 3 axes: The client

The client risk profile must be determined according to the financial products typology. Moreover, in the client profile determination, his loss tolerance must be evaluated according to his actual situation. The latter concept brings a dynamic aspect of data analysis to this profile management.

The financial productElements transmitted by the producer must be managed in terms of target market, clients target typology as well as this product’s distribution strategy. These elements are used to evaluate the level of advice to realize during sale and during a product cycle.

The collaboratorThis management belongs to the concept of distribution strategy and advice level expected for the product sale.

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IMPACTS & INTER-ACTIONS ON DISTRIBUTORS IS

Risk profile

Advice profile

Product profile

client

collaboratorproduct

compliance

CRMClients behavioral analysis

Products catalogueDistribution strategy

CRM

Clients communications records & traceability

Warnings, arbitration and audit

Permanent control

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CONCLUSION 2

Enhancements brought by MIF 2 will particularly impact the information system within the financial products distribution framework. The systems must be provided with profiles management that enables to dynamically control the characteristics

adequacy between the client risk profile, the distribution strategy determined at the financial product creation and the capacity of the distribution network collaborators advice.

The systems must manage a products catalogue with important information concerning characteristics on the method of distribution, advice and adequacy compared to network collaborators and clients risk profiles.

The systems must set a permanent control on the clients investment portfolio evolution compared to their profile with warnings management, allowing arbitrations when necessary and an audit trail for these financial products distribution agreements.

Finally, the CRM tools are also impacted with the clients data dynamic analysis, to establish loss tolerance regarding clients financial situation, with client relationship recording and traceability.