mifid ii - key impacts & considerations sell-side firms · “[t]he mifid ii best execution...
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© CCL Limited 2014
MiFID II - Key Impacts &Considerations
Sell-Side Firms
Breakfast Briefing
13th June 2017
© CCL Limited 2014
Agenda
Introduction, Objectives and Market Structure Peter Haines, Global Head of GRC, CCL Academy
Product Governance, Suitability and Appropriateness Stuart Holman, Managing Director, Consultancy Services, CCL Compliance
Conflicts of Interest, Inducements and Marketing Martin Mitchell, Director of Learning (UK), CCL Academy
Trading and Execution Nigel Sydenham, Head of GRC (UK), CCL Academy
Reporting and Transparency Bruce Viney, Global Head of FCC, CCL Academy
MiFID II Training Peter Haines, Global Head of GRC, CCL Academy
© 2017 CCL Academy Limited 2
© CCL Limited 2014
Introduction, Objectives and Market Structure
Peter Haines
Global Head of GRC, CCL Academy
© 2017 CCL Academy Limited 3
© CCL Limited 2014
The MiFID II Maze
MiFID II – The Directive
MiFIR – The Regulation
MiFID II - Delegated Directive
MiFID II – Commission Delegated
Regulation (A.K.A. the MiFID Org Regulation)
ESMA Technical Guidance
ESMA Q&As
FCA Consultative Papers
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© CCL Limited 2014
Objectives of MiFID II
Market Transparency: Expands the need for transparency and reporting
beyond shares to depositary receipts, ETFs, derivatives, bonds, structured
finance products and certificates
Investor Protection: Enhances investor protection through upgraded selling
rules, provision of best execution and the use of pre-contractual
documentation
Market Structure: Introduces new market structure entities to meet the
trading, transparency and reporting requirements and expands the use of
vehicles utilising those entities
Organisational Requirements: Stipulates the constitution of boards and
management committees, and their organisational responsibilities
Product Intervention: Extends the scope of legislation to OTC derivatives
and commodities including pre and post-trade transparency, position limits
and details on sanctions
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MiFID II Trading Venues
MiFID
• Regulated Market: typically an
exchange such as the London
Stock Exchange
• Multilateral Trading Facility (MTF):
a platform enabling trades
between multiple counterparties
on a non-discretionary basis
without being a regulated market.
• Systematic Internalisers (SI):
Investment Firms dealing for their
own accounts, executing client
orders outside RM/MTF. SIs can
choose who to give access to
prices on a commercial, non-
discriminatory basis.
MiFID II
• Regulated Market
• Multilateral Trading Facility (MTF)
• Organised Trading Facility (OTF):
New, created for MiFID II,
recognising the role played by inter-
dealer brokers in many OTC
markets. Can have discretion as to
how orders may be executed.
• Systematic Internalisers (SI):
Investment Firms dealing for their
own accounts, executing client
orders outside RM/MTF. SIs can
choose who to give access to prices
on a commercial, non-
discriminatory basis.
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© CCL Limited 2014
Product Governance, Suitability and Appropriateness
Stuart Holman
Managing Director, Consultancy Services,
CCL Compliance
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© CCL Limited 2014
Product Governance
Arts 16(3) & 24(2) MII & Arts 9 & 10 MiFID Delegated Directive
End to End Responsibilities
Responsibilities of Manufacturers
Target Market Assessment
Responsibilities of Distributors
Review Cycle
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Suitability & Appropriateness
Art 25 MII & Arts 54-57 MiFID Organisational Regulation 565 –
ESMA Guidelines
Suitability: Investment Advice & Portfolio Management
Professional Clients – Per Se - V - Elective
CBA on Switching
Complex or Non–Complex
Bundled Products
9 © 2017 CCL Academy Limited
© CCL Limited 2014
Marketing, Inducements and Conflicts of Interest
Martin Mitchell
Director of Learning, CCL Academy
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Conflicts of Interest
MiFID II revises the current requirements in the following ways, it:
Requires firms to take all ‘appropriate’ steps to identify, prevent
or manage conflicts of interest from arising
Explicitly states that firms need to identify, prevent or manage
the conflicts caused by inducements and remuneration or other
incentive structures
Increases the reporting obligations on firms and reviews to be
carried out by senior management
Significantly enhances the content and quality of the disclosure
made to clients when firms cannot manage or prevent conflicts
of interest from arising
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InducementsMiFID II strengthens the current inducement rules and introduces the following changes:
Firms providing independent investment advice or portfolio management may not receive or retain any fees, commission, or monetary or non-monetary benefits from third parties. If received, they must be passed on in full to clients “as soon as reasonably possible”
Minor non-monetary benefits are excluded from the prohibition, but they must not
impair a firm’s duty to act in the best interests of its clients, must be capable of enhancing the quality of client service and must be disclosed
Firms not providing independent investment advice or portfolio management must comply with existing MiFID rules for all types of third party payments
Clients need to be accurately and, where relevant, periodically informed about all the fees, commissions and benefits the firm has received in connection with the investment services provided
If applicable, firms must inform clients on how the fee/commission/non-monetary benefit can be transferred to them – and portfolio managers and independent
advisers should have a policy for this.
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Research
MiFID II brings substantial changes:
The Directive prohibits investment firms that provide investment advice and
portfolio management generally from receiving inducements (other than minor
non-monetary benefits)
Research is not considered an inducement, as long as it is paid for separately
from execution
Payment is either from the firm’s own resources or from a separate ‘research
payment account’ that meets certain requirements
‘Research in this context should be understood as covering material or
services concerning one or several financial instruments……and provides a
substantiated opinion as to the present or future value or price of such
instruments.’
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Marketing Communications
MOR Art. 44.2 is new:
Requires a font size in the indication of relevant risks that is at least equal to
the predominant font size.
Other MOR Art. 44 issues:
“The information is based on performance scenarios in different market
conditions (both negative and positive) and reflects the nature and risks of
specific types of instruments included in the analysis.”
“The information shall not use the name of any competent authority in such a
way that would indicate or suggest endorsement or approval by that authority
of the products or services of the investment firm.”
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Trading and Execution
Nigel Sydenham
Head of GRC(UK), CCL Academy
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Trading & Execution
Best execution under MiFID II – fundamental change or more of the same?
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Best Execution – Where Are We Now?
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Best Execution – Where Are We Now?
FCA Thematic Review – July 2014
“many firms do not understand key elements of our requirements and are not embedding them into their business practices.”
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Best Execution – Where Are We Now?
FCA Report on Supervisory Work – March 2017
“We were concerned to find that most firms had failed to take on
board the findings of our thematic review. The pace of change in improving client outcomes in best execution was slow, with few firms having a cohesive strategy for improving client
outcomes.”
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Best Execution – The New Obligations
Under MiFID Article 27 Firms are now required to ‘“take allsufficient steps to obtain, when executing orders, the best possible result for their clients”
Note the change from ‘all reasonable steps’ – the FCA
describes this as a ‘higher bar for compliance’
“Do, or do not.
There is no try.”
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Best Execution – The New Obligations
MiFID II also strengthens the existing best execution standard
in relation to OTC products.
Article 64 of MOR requires firms, when executing orders or
taking decisions to deal in OTC products, including bespoke
products, to “check the fairness of the price proposed to the
client by gathering market data used in the estimation of the
price of such product and, where possible, by comparing with
similar or comparable products.”
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Best Execution – The New Obligations
Reporting requirements are also strengthened:
• RTS 27 – Requires execution venues to provide quarterly reports to on execution quality
• RTS 28 – Requires firms to publish an annual report to provide clients with a list of the top five execution venues where they have executed or sent for execution their client orders in the preceding year and a summary of outcomes that have been achieved
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Best Execution – The New Obligations
Additional rules relate to:
• The use of a single venue for execution
• Order execution policies, which must now be clear, easily
comprehensible and sufficiently detailed so that clients can
easily understand how firms will execute client orders.
• The need to be able to demonstrate best execution to
national regulators (in addition to clients)
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Best Execution – The FCA’s View
“[T]he MiFID II best execution regime does not require a fundamental review of firm’s existing arrangements where they are compliant with their current obligations.
[my emphasis]
Rather, MiFID II introduces more
detailed and prescriptive
requirements … the cumulative
impact of which raises the
overall compliance standard.”
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Reporting and Transparency
Bruce Viney
Global Head of FCC, CCL Academy
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Trading Transparency
Substantially expands pre and post trade transparency
Now includes other equity-like and non equity like instruments admitted to trading or traded on a trading venue
Trading venues is extended to include RMs, MTFs and OTFs for non-equities.
Waivers
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Pre and Post Trade TransparencyPre trade: Operators of trading venues must:
• make public current bid and offer prices;
• depth of trading interests at those prices; and
• equities, equity-like interests and non-equity instruments.
Post trade:
• includes non-equity and equity-like instruments and instruments traded on MTFs and OTFs
• make public the price, volume and time of transactions as close to real-time as is technically possible
Publication of trading data
• Available to the public, non-discriminatory basis
• Free, 15 minutes after publication
• Expanded requirements for SIs
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Reporting
Trade reporting:
• firms to report via Approved Publication Arrangement (APA)
Transaction reporting:
• Scope: all “investment firms”, including investment managers providing
investment advice and portfolio management on a client-by-client basis
(e.g. managed accounts).
• Report no later than T+1
• Required fields increase from 23 to 81 (only 13 unchanged)
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© CCL Limited 2014
MiFID II Training
Peter Haines
Global Head of GRC, CCL Academy
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© CCL Limited 2014
MiFID II Training
Senior management will need to know the main implications
Client-facing staff will want to know exactly how the changes will affect them
Don’t forget support staff
The regulators will be interested to hear how you have
informed staff of the main changes
MiFID II training will come to a crescendo in Q4
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© CCL Limited 2014
Questions for the Speakers?
Peter Haines Global Head of GRC, CCL Academy [email protected]
Stuart Holman Managing Director, Consultancy Services, CCL [email protected]
Martin Mitchell Director of Learning, CCL [email protected]
Nigel Sydenham Head of GRC (UK), CCL [email protected]
Bruce Viney Global Head of FCC, CCL [email protected]
© 2017 CCL Academy Limited 31
For further information, please contact us on: t +971 4 323 0800 e [email protected] www.cclacademy.com
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Thank You For Attending
CCL can provide the following support to help your Firm prepare for MiFID II:
• Face-to-Face Awareness Training• In-depth training for Compliance
and other control functions• eLearning
• Reviews, Guidance & Remediation• Documentation• CCL C.O.R.E – evidential assurance
of your MiFID II compliance