mifid ii - key impacts & considerations sell-side firms · © ccl limited 2014 mifid ii - key...

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© CCL Limited 2014 MiFID II - Key Impacts & Considerations Sell-Side Firms Breakfast Briefing 13 th 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

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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

© 2017 CCL Academy Limited 4

© 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

© 2017 CCL Academy Limited 5

© CCL Limited 2014

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.

© 2017 CCL Academy Limited 6

© CCL Limited 2014

Product Governance, Suitability and Appropriateness

Stuart Holman

Managing Director, Consultancy Services,

CCL Compliance

© 2017 CCL Academy Limited 7

© 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

8 © 2017 CCL Academy Limited

© CCL Limited 2014

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

© 2017 CCL Academy Limited 10

© CCL Limited 2014

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

© 2017 CCL Academy Limited 11

© CCL Limited 2014

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.

© 2017 CCL Academy Limited 12

© CCL Limited 2014

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.’

© 2017 CCL Academy Limited 13

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 14

© CCL Limited 2014

Trading and Execution

Nigel Sydenham

Head of GRC(UK), CCL Academy

© 2017 CCL Academy Limited 15

© CCL Limited 2014

Trading & Execution

Best execution under MiFID II – fundamental change or more of the same?

© 2017 CCL Academy Limited 16

© CCL Limited 2014

Best Execution – Where Are We Now?

© 2017 CCL Academy Limited 17

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 18

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 19

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 20

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 21

© CCL Limited 2014

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

© 2017 CCL Academy Limited 22

© CCL Limited 2014

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)

© 2017 CCL Academy Limited 23

© CCL Limited 2014

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.”

© 2017 CCL Academy Limited 24

© CCL Limited 2014

Reporting and Transparency

Bruce Viney

Global Head of FCC, CCL Academy

© 2017 CCL Academy Limited 25

© CCL Limited 2014

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

© 2017 CCL Academy Limited 26

© CCL Limited 2014

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

© 2017 CCL Academy Limited 27

© CCL Limited 2014

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)

© 2017 CCL Academy Limited 28

© CCL Limited 2014

MiFID II Training

Peter Haines

Global Head of GRC, CCL Academy

© 2017 CCL Academy Limited 29

© 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

© 2017 CCL Academy Limited 30

© 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

Thank you for attendingClick to edit Master title style

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w: www.cclcompliance.co.uk

e: [email protected]

w: www.cclacademy.co.uk

e: [email protected]

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